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THE INSTITUTE OF ECONOMICS 

OF 

THE BROOKINGS INSTITUTION 



Publication No. 63 
For a selected list of publications see the end of the book. 



THE BROOKINGS INSTITUTION 

The Brookings Institution — Devoted to Public Service through Research 
and Training in the Social Sciences — was incorporated on December 8, 1927. 
Broadly stated, the Institution has two primary purposes: the first is to aid 
constructively in the development of sound national policies; and the second 
is to offer training of a super-graduate character to students of the social 
sciences. The Institution will maintain a series of co-operating institutes, 
equipped to carry out comprehensive and inter-related research projects. 

The responsibility for the final determination of the Institution's policies 
and its program of work and for the administration of its endowment is 
vested in a self-perpetuating Board of Trustees. The Trustees have, how- 
ever, defined their position with reference to the investigations conducted by 
the Institution in a by-law provision reading as follows: "The primary func- 
tion of the Trustees is not to express their views upon the scientific investiga- 
tions conducted by any division of the Institution, but only to make it 
possible for such scientific work to be done under the most favorable 
auspices." Major responsibility for "formulating general policies and co- 
ordinating the activities of the various divisions of the Institution" is vested 
in the President. The by-laws provide also that "there shall be an Advisory 
Council selected by the President from among the scientific staff of the Insti- 
tution and representing the different divisions of the Institution." 

BOARD OF TRUSTEES 

Dwight F. Davis John C. Merriam 

Frederic A. Delano Roland S. Morris 

Clarence Phelps Dodge Harold G. Moulton 

Jerome D. Greene Lessing Rosenthal 

Alan son B. Houghton Leo S. Rowe 

Morton D. Hull Anson Phelps Stokes 

Vernon Kellogg Harry Brookings Wallace 
John G. Winant 

OFFICERS 

Frederic A. Delano, Chairman 

Leo S. Rowe, V ice-Chairman 

Harold G. Moulton, President 

Leverett S. Lyon, Executive Vice-President 

Henry P. Seidemann, Treasurer 



MARKETING AGREEMENTS 
UNDER THE AAA 



MARKETING AGREEMENTS 
UNDER THE AAA 



BY 

EDWIN G. NOURSE 



WASHINGTON, D. C. 
THE BROOKINGS INSTITUTION 

1935 



220.3 



Copyright, 1935, by 
THE BROOKINGS INSTITUTION 



Set up and printed 

Published October, 1935 

All rights reserved including the right of reproduction in whole 
or in part in any form 



Primed in the United States of America 

The William Byrd Press, Inc. 

Richmond, Virginia 



YflA«0t-* 



DIRECTOR'S PREFACE 

This is the fifth of a series of six descriptive and analyti- 
cal volumes dealing with various phases of work of the 
Agricultural Adjustment Administration. The other 
volumes deal with "basic" commodities — wheat, cotton, 
livestock, tobacco, and dairy products. In a sense, the 
field of this book is, like the other five, delimited along 
commodity lines. That is, it deals primarily with "gen- 
eral crops" not included in the "basic" classification. In a 
broader sense, however, the bounds of the discussion are 
not drawn along commodity lines but according to the 
method of "adjustment" used, namely, marketing adjust- 
ment under agreements, licenses, and orders rather than 
production adjustment implemented by processing taxes 
and rental or benefit payments. Since it examines the use 
of the former method wherever it was undertaken and 
since basic commodities were eligible to both methods of 
treatment, the book is not limited merely to "general 
crops" but describes also such applications of the market- 
ing agreement and license as were made to wheat, tobacco, 
dairy products, rice, and peanuts, products which either 
were included in the original basic group or subsequently 
were added to that classification by amendment of the 
act. 

The author wishes to make grateful acknowledgment 
to the many persons, both inside and outside the ranks 
of the Adjustment Administration staff, who contributed 
generously of their assistance and criticisms in the prepara- 
tion of the manuscript. Special acknowledgment is made 
to Virgil D. Gilman, now of the staff of the Division of 

vii 



viii MARKETING AGREEMENTS 

Land Utilization, Resettlement Administration, but a 
member of our group during the first year of the AAA 
study. 

The book was read in manuscript by Joseph S. Davis of 
the Food Research Institute and John D. Black of Har- 
vard University who have been associated with me in the 
conduct of the AAA study and by Leverett S. Lyon as a 
representative of the regular staff of the Institute of Eco- 
nomics. While their criticisms and suggestions have been 
of great assistance, the author alone is responsible for the 
conclusions arrived at. 

Edwin G. Nourse 

Director 
Institute of Economics 
September 1935 



CONTENTS 

PAGE 

Director's Preface vii 

chapter i 

Origins of the Marketing Agreement and Licensing 

Provisions i 

Marketing Agreement Proposals in the McNary-Haugen 

Bills 3 

The Marketing Agreement Procedure in Eclipse, 1929-33 9 
Marketing Agreement Provision Added to the Domestic 

Allotment Bill 13 

The Licensing Provision 16 

chapter 11 

Agreement Procedures and Policy 24 

Administrative Organization and Procedure 24 

Principal Views as to the Use of Marketing Agreements 37 

chapter III 

Volume and Character of Agreements and Licenses 50 

Number and Dispersion 50 

Types of Problems Covered by Agreements 58 

chapter iv 

The Wheat Export Agreement 64 

Background and Formulation of the Agreement , 66 

Terms of the Agreement 70 

Operation and Results 72 

chapter v 

The Tobacco and Peanut Agreements 76 

The Flue-Cured Tobacco Agreement 78 

The Marketing Agreement for Peanut Millers 88 

The Connecticut Valley Shade-grown Tobacco Agree- 
ment 95 

ix 



x CONTENTS 

chapter vi page 

Rice Marketing Agreements 98 

Situation of the Industry and Objectives of the Plan. ... 100 

The California Agreement 101 

The Southern Agreement, License, and Code 107 

Abandonment of Marketing Agreements 113 

chapter vii 

Limitation and Proration of Perishable Shipments 119 

Southeastern Watermelons and Florida Strawberries 120 

California Deciduous Tree Fruits 126 

Other Simple Proration Agreements 133 

Northwest Deciduous Tree Fruit 140 

chapter viii 

Citrus Marketing Agreements and National Stabiliza- 
tion Plans 148 

Citrus Proration in California, Texas, and Florida 149 

National Stabilization of the Citrus Market 155 

chapter IX 

Canning Crops, Dried Fruits, and Nuts 165 

The Cling Peach Canners' Agreement 165 

Other Canning Crop Agreements 173 

Dried Fruit Agreements 182 

Walnuts and Pecans 189 

chapter x 

Dairy Products 196 

Milk Market Practices and Price Structure 200 

The Fifteen Fluid Milk Agreements 206 

Abandonment of Agreements 216 

New Policy and More Licenses 218 

Evaporated and Dry Milk Agreements 226 

chapter xi 

Administrative Procedures and Problems 231 

Organization of Central Administrative Agency 231 



CONTENTS xi 

PAGE 

Safeguarding Local Autonomy . . . 236 

Co-ordinating Central and Local Agencies 245 

Make-up of Local Supervisory Bodies 249 

Producers' Direct Participation in Agreements 253 

Relations between the AAA and Co-operatives 255 

Securing Current Data on Operations 258 

Administration under the Amendments of 1935 262 

chapter xii 

Enforcement and Legality 267 

Enforcement Agencies and Measures. . . . 268 

Due Process and Interstate Commerce 275 

Delegation of Legislative Power 283 

Prospects of Enforcement in the Future 290 

chapter xiii 

Regulatory Provisions and New Market Mechanisms . . . 295 

Grading, Inspection, and Checking 297 

Service Charges 304 

Fair Trade Practices 307 

Securing Reports and Access to Books 309 

Reconstruction of Market Mechanisms. 313 

chapter xiv 

Price Objectives and Strategy 315 

Collective Price Making 316. 

Types of Supply Control 322 

The Two-price System 337 

Fixed Prices and Open Prices • . . 341 

Sophisticated Price-making Systems 345 

chapter xv 
Results and Future Usefulness of Market Adjustment 

Devices 350 

Limited Gains to Milk Producers 351 

General Crops 358 

The Weakness of Incomplete Control . 363 



xii CONTENTS 

PAGE 

The Dangers of Complete Control 366 

The Present Issue . . . 368 

appendix a 
Marketing Agreement for Growers and Shippers of 
California Fresh Deciduous Tree Fruits except Apples 375 

appendix b 
Marketing Agreement for Packers of Walnuts Grown 
in California, Oregon, and Washington, with Amend- 
ments 404 

appendix c 
Sections of the Agricultural Adjustment Act Cover- 
ing Marketing Agreements and Orders 423 



CHAPTER I 

ORIGINS OF THE MARKETING AGREEMENT 
AND LICENSING PROVISIONS 

The Agricultural Adjustment Act of 1933 is generally, 
and quite properly, regarded as the lineal descendant of 
the "domestic allotment" plan for the restoration of farm 
prosperity. 1 Fully four-fifths of the text of the act relates 
to acreage adjustment, rental and benefit payments, proc- 
essing taxes, and other matters incidental to what has 
come to be tersely called production control. But at a 
late stage in the legislative history of the act two brief 
sections were added providing for a quite different type 
of agricultural adjustment. This took the form of mar- 
keting agreements and licenses. 

In contrast to the relatively minor role which the mar- 
ket adjustment feature was accorded in legislative debate 
on the bill, it has in the actual operation of the measure 
been constantly and vigorously called into use. Not only 
has it been resorted to for the aid of fiwc of the seven "basic" 
commodities named in the act; besides this, it has been the 
one approach through which relief could be sought for a 
host of "general crops" not eligible to the "benefit pay- 
ment" and production control features of the act. And 
although these provisions were added somewhat hastily 
in the later days of the bill's evolution, they tie back into a 
long history of growth in agricultural marketing institu- 
tions and co-operative endeavor. They are of such dis- 

1 For explanation of this plan, see John D. Black, Agricultural Reform in 
the United States, pp. 271 fl. Also the wheat, cotton, and livestock studies in 
the present series. 



2 MARKETING AGREEMENTS 

tinctive character and potential importance that they 
might almost have constituted a separate piece of legis- 
lation. 

The provisions of the original act which dealt with 
marketing agreements and licenses were very short and 
general. They simply empowered the Secretary of Agri- 
culture to enter into such agreements with "processors, 
associations of producers, and others" as would in his 
judgment "effectuate the declared policy" of the act, 2 and 
to put these "processors, associations of producers, and 
others" under licenses having such terms and conditions 
"as may be necessary to eliminate unfair practices or 
charges that prevent, or tend to prevent, the effectuation 
of the declared policy and the restoration of normal eco- 
nomic conditions in the marketing of such commodities 
or products and the financing thereof." 3 

With these broad and general powers rather than any 
specific mandate, the administrators of the Adjustment Act 
have during two years' time proceeded with considerable 

2 The declaration of policy contained in the act is as follows: 

"It is hereby declared to be the policy of Congress — 

"(i) To establish and maintain such balance between the production and 
consumption of agricultural commodities, and such marketing conditions there- 
for, as will re-establish prices to farmers at a level that will give agricultural 
commodities a purchasing power with respect to articles that farmers buy, 
equivalent to the purchasing power of agricultural commodities in the base 
period. The base period in the case of all agricultural commodities except 
tobacco shall be the pre-war period, August 1909-July 1914. In the case of 
tobacco, the base period shall be the post-war period, August 1919-July 1929. 

"(2) To approach such equality of purchasing power by gradual correc- 
tion of the present inequalities therein at as rapid a rate as is deemed feasible 
in view of the current consumptive demand in domestic and foreign markets. 

"(3) To protect the consumers' interest by readjusting farm production at 
such level as will not increase the percentage of the consumers' retail expendi- 
tures for agricultural commodities, or products derived therefrom, which is 
returned to the farmer, above the percentage which was returned to the farmer 
in the pre-war period, August 1909-July 191 4." 48 Stat. L. 31. 
3 For subsequent amendments, see Appendix C. 



ORIGINS 3 

vigor to explore the opportunities thus opened to them. 
This development of the field, however, has not as yet been 
either systematic or exhaustive. The administrative or- 
ganization under which it was carried out was during 
its first year or two inevitably under the heavy stress of 
an emergency undertaking and subject to strong pressure 
from diverse economic interests. With the withdrawal of 
certain groups that had entered into agreements during 
the first and second year of the act, and with the coming 
of various adverse judicial decisions in the lower courts 
and rather drastic revamping of the act in the summer of 
1935, the time seems opportune for re-examination of the 
whole marketing agreement proposal. The failures met 
with, the successes achieved, and the problems revealed 
during three seasons of operative experience should teach 
lessons of great value in guiding the course of future 
action. 

In the present volume, therefore, we shall undertake an 
analysis of the potentialities of these devices as major pro- 
cedures for the promotion of farm prosperity and agricul- 
tural stabilization. Such appraisal will be the task of the 
last four chapters of the book. Earlier chapters will be 
devoted to presenting a discussion of the origin and ap- 
parent philosophy of the marketing agreement and licens- 
ing features of the act and of the steps actually taken 
under them. 

MARKETING AGREEMENT PROPOSALS IN THE 
McNARY-HAUGEN BILLS 

The precise origin of the marketing agreement proposal 
seems not to be widely known or well understood. The 
first expression of the general idea is to be found in the 
Dickinson bill introduced in the House of Representatives 



4 MARKETING AGREEMENTS 

on January 4, 1926. 4 The feature was taken over in the 
third McNary-Haugen bill. This bill was defeated 
(H. R. 1 1603, 69th Congress, first session) in the House 
of Representatives on May 21, 1926, but, modified in some 
details, was re-introduced at the second session of the 69th 
Congress (S. 4808). It was passed by both houses but was 
vetoed by President Coolidge on February 25, 1927. 

These bills included the characteristic feature of selling 
part of the supply abroad, even on a lower price basis, with 
a view to maintaining relatively high prices on the com- 
modity domestically consumed, with the losses on export 
sales financed through an equalization fee levied on the 
first commercial purchaser of the commodity. They went 
beyond previous bills, however, in designating co-operative 
associations of producers as the agencies through which 
export surpluses would be handled and the general price 
policy carried out. Besides this emphasis on co-operatives, 
which then occupied the center of the stage of active public 
interest and governmental concern, these bills provided 
also that if the board was of the opinion that there was 
no suitable co-operative available, "other agencies" could 
be used as parties to agreements made by the proposed 
federal farm board in order to promote "orderly marketing, 
to stabilize markets against undue and excessive fluctua- 
tions, to preserve advantageous domestic markets, to 
minimize speculation and waste in marketing." As to 
the nature of such operations, it was provided: 

Sec. 6(e) 5 Such agreements may provide for (1) removing or 

4 69 Cong. 1 sess., H. R. 6563, a bill to establish a federal farm advisory 
council and a federal farm board, to aid in the disposition of the domestic 
surplus of agricultural commodities through co-operative associations and for 
other purposes. 

5 Thus numbered in S. 4808. In H. R. 11 603 the same section appeared 
as 8(e). 



ORIGINS 5 

disposing of any surplus of the basic agricultural commodity, 
(2) withholding such surplus, (3) insuring such commodity 
against undue and excessive fluctuations in market conditions, and 
(4) financing the purchase, storage, or sale or other disposition of 
the commodity. The moneys in the stabilization fund of the basic 
agricultural commodity shall be available for carrying out such 
agreements. 

After this measure had been vetoed, it was further revised 
before introduction into the next Congress, and in the new 
bill the phrase "marketing agreement" was employed for 
the first time. 6 Section 4 of the bill provided that for each 
agricultural commodity which the federal farm board, set 
up to administer the act, "determines may thereafter re- 
quire stabilization by the board through marketing agree- 
ments" the board should create an advisory council "of 
seven members fairly representative of the producers of 
such commodity." Section 9 provided that upon request 
of such advisory council or of leading co-operative associa- 
tion or organizations of producers, or upon "its own 
motion, the board shall investigate the supply and market- 
ing situation in respect of such agricultural commodity." 
If it should find a "surplus ... in excess of the require- 
ments for the orderly marketing of any agricultural com- 
modity or in excess of the domestic requirements for the 
commodity" and should decide that the co-operatives were 
not in a position "to control such surplus . . . then the 
board, after publicly declaring its findings, shall arrange 
for the marketing of any part of the commodity by means 

6 70 Cong. 1 sess., S. 3555. 

It would appear, however, that even the bill of 1926-27 was regarded by 
those working on this legislation as embodying the principle of marketing 
agreements. The House report on the later measure (S. 3555) in discussing 
differences between the two bills states that the latter "clarifies and modifies 
marketing agreement provisions of the former." (Italics ours.) 70 Cong. 
1 sess., H. rep. 1273, p. 5. 



6 MARKETING AGREEMENTS 

of marketing agreements with cooperative associations 
engaged in handling the commodity or corporations 
created and controlled by one or more such co-operative 
associations." 7 

It can thus be seen that the philosophy of the McNary- 
Haugen measure in its final form was to rely upon the 
individual decisions of farm enterprisers as the determinant 
of supply conditions, subject only to such information, 
advice, or persuasion as the proposed farm board, other 
branches of the government, or educational institutions 
might give. The farm board was to be the special admin- 
istrative agency for dealing with price-depressing surpluses 
as they might develop in spite of such guidance. The 
agreement between distributors or processors and the gov- 
ernment in the person of the farm board was the device 
through which such excessive supplies were to be handled 

7 "A marketing agreement shall provide either: 

"(i) for the withholding by a co-operative association, or corporation cre- 
ated and controlled by one or more co-operative associations, during such 
period as shall be provided in the agreement, of any part of the commodity 
delivered to such co-operative association or associations by its members. . . . 
or (2) for the purchase by a co-operative association, or corporation created 
and controlled by one or more co-operative associations, of any part of the 
commodity not delivered to such co-operative association or associations by 
its members, and for the withholding and disposal of the commodity so pur- 
chased. Any such marketing agreement shall provide for the payment from 
the stabilization fund for the commodity of the amount of the losses, costs, 
and charges arising out of the purchase, withholding, and disposal, or out of 
contracts therefor, and for the payment into the stabilization fund for the 
commodity of profits . . . arising out of the purchase, withholding, and dis- 
posal, or out of contracts therefor." 

It was also provided that: "If the board finds that its advice as to a pro- 
gram of planting or breeding of any agricultural commodity as provided in 
Section 3(i) as hereinbefore stated has been substantially disregarded by the 
producers of the commodity, or that the planting or breeding of any agri- 
cultural commodity for any year is substantially greater than a normal in- 
crease, as determined by the board, over the average planting or breeding of 
such commodity for the preceding five years, the board may refuse to make 
advances for the purchase of such commodity." (S. 3555.) 



ORIGINS 7 

through a comprehensive distributive agency so as to mini- 
mize their harmful effects on the agricultural price struc- 
ture and hence on farm incomes. 

It should be recognized that all this was an expression 
of the economic philosophy of George N. Peek, who since 
1922 had been the chief proponent of a plan for bringing 
about "equality for agriculture." 8 It was evidently his 
belief that it was unwise or futile to attempt direct control 
or regulation of production, 9 a general advisory role being 

8 Early in 1922 the Peek plan was presented in a pamphlet of 48 pages 
under the title Equality for Agriculture. In this first printing no authors' 
names were attached, but, when re-issued later that year in slightly revised 
form, the names of Mr. Peek and General Hugh S. Johnson appeared as co- 
authors. 

Mr. Peek had the general outlines of such a plan developed to a point 
where he was hopeful of having it considered at the National Agricultural 
Conference called by President Harding in January 1922. Those responsible 
for making the program of this conference did not provide an opportunity 
for him to present it on the floor of the conference. He was assigned to Com- 
mittee No. 7, Marketing of Farm Products, and there this plan was not 
accepted. However, when John Simpson of the Farmers' Union offered a 
resolution endorsing price-fixing for agricultural commodities, Peek proposed 
a substitute which was adopted. It was worded as follows: "Agriculture is 
necessary to the life of the nation; and, whereas, the prices of agricultural 
products are far below the cost of production, so far below that relatively 
they are the lowest in the history of our country; therefore, it is the sense of 
this committee that the Congress and the President of the United States 
should take such steps as will immediately re-establish a fair exchange value 
for all farm products with that of all other commodities." 

Also Committee No. 1, Agriculture and Price Relations, presented a reso- 
lution: "That this conference recommends that every instrumentality of the 
government of the United States be exercised to put the agricultural industry 
on a par with other industries both as to remuneration, education, and gen- 
eral standard of living." Henry A. Wallace, L. J. Taber, master of the Na- 
tional Grange, David Friday, then president of the Michigan Agricultural 
College, and Samuel Gompers were members of this committee. Report of 
the National Agricultural Conference, Jan. 23-27, 1922, pp. 138, 171. 67 
Cong. 2 sess., Public No. 195. 

9 In December 1924 Mr. Peek, writing as president of the American Coun- 
cil of Agriculture to President Coolidge's Agricultural Conference, said: "It is 
unfortunate that many spokesmen for agriculture accept the view that the 
farmers' troubles come from over-production. . . . The existence of an ex- 



8 MARKETING AGREEMENTS 

all that should be attempted. He did, on the other hand, 
believe strongly that a substantial enhancement of the 
farmer's income could be secured by marketing such sup- 
plies as did come forward under a co-ordinated adminis- 
tration sponsored and aided by the government. 

This government aid was of two kinds. First, Mr. Peek's 
scheme provided the novel device of an equalization fee as 
a means of segregating the export surplus from the domes- 
tically consumed part of the supply and making it possible 
to pay a differentially higher price on the latter behind the 
protective tariff wall which, in the absence of such a special 
price machinery, would be ineffective as to agricultural 
commodities which were on an export basis. Second, in 
order to take full advantage of the favorable conditions 
thus created, it was conceived as important that that pro- 
portion of the commodity which was sold in the domestic 
market should be equalized as to both time and place of 
sale through a highly centralized marketing agency, co- 
operative or governmental in character. This would mean 
a closely controlled price situation so far as the given supply 

portable surplus of a vitally important food crop or commodity is not an evil, 
nor should the aim be to render it non-existent by acreage reduction. . . . 
No human power can adjust acreage in crop or number of livestock so as 
to be certain of having no surplus for export on the one hand, without in- 
viting national under-production, possibly famine, on the other. . . . No 
human agency can adjust acreage or number of these great commodities and, 
except by accident, arrive at, or anywhere near, the desired mark in pro- 
duction. No human agency should attempt to. The one attempting it 
would be faced with the necessity of suggesting substitute crops to utilize the 
acres thus vacated. The difficulty of this is apparent. It is noteworthy that 
those ardent advocates who in 1923 would have turned the wheat farmers 
into commercial producers of butterfat, are now silent in the face of existing 
conditions in the dairy industry. Even if it were possible for farmers through 
voluntary organization to make a nice adjustment of acreage to the estimated 
domestic demand, there is no possible way of forecasting to what extent drouth 
and flood, hail and freeze, insects and disease — all these and others beyond 
the farmers' power to foresee and control — would thwart such calculations." 



ORIGINS 9 

was concerned, but it did not entail either a philosophy 
or a machinery of production control. 

THE MARKETING AGREEMENT PROCEDURE 
IN ECLIPSE, 1929-33 

After the McNary-Haugen bill had been vetoed a second 
time (May 1928) and Mr. Hoover had come to the presi- 
dency, the run of attention and effort changed somewhat. 
The Agricultural Marketing Act of 1929 turned its back 
upon the equalization fee and its implication of export 
dumping and placed its reliance on ability to sell col- 
lectively at satisfactory prices in both domestic and foreign 
markets, backed by the support of a well-financed Federal 
Farm Board. 

The general theory was not essentially different from 
either the "commodity marketing" philosophy of the Sapiro 
co-operatives of the early 1920's or the marketing agree- 
ment phase of the later drafts of the McNary-Haugen 
plan, 10 except that there was no equalization fee to provide 
funds to absorb any losses incurred through the sale of sur- 
plus at lower prices. The measure placed emphasis on abil- 
ity to maintain a substantially higher level of prices if sup- 
pliers of the product were organized into a comprehen- 
sive selling agency. The Farm Board was to stimulate 
organization and consolidation of "national" co-operatives 
and guide their course rather than follow the marketing 
agreement procedure of the later McNary-Haugen plan. 11 

10 Besides the marketing agreement feature, the Agricultural Marketing Act 
retained both the farm board and the commodity advisory council devices of 
the McNary-Haugen bill (see pp. 5, 6) and in numerous sections employed 
the very phraseology of that measure. 

11 Besides the consolidation of comprehensive federated or centralized or- 
ganizations, the act also authorized the Board "to assist in forming producer- 
controlled clearing-house associations adapted to effecting the economic dis- 
tribution of the agricultural commodity." Since "independent dealers in, and 



io MARKETING AGREEMENTS 

These comprehensively organized co-operatives were to 
conduct collective bargaining in the producer's interest and 
would be so amply fortified with credit at a low interest rate 
that they, either directly or through separate stabilization 
corporations, could carry redundant supplies over a period 
of high production or curtailed demand for considerable 
periods to await the emergence of a more favorable supply- 
demand situation. The Federal Farm Board, set up under 
the Agricultural Marketing Act, never accepted export 
dumping as a policy, or paid export subsidies. When it 
approved wheat sales at a loss by the Grain Stabilization 
Corporation it took pains to argue that these could not 
properly be regarded as export dumping. 12 All told, such 
sales probably amounted to less than one-fourth of the 
stabilization holdings of wheat. 

In its phraseology the act gave "orderly production" 
correlative importance with "orderly marketing." During 
the scant four years of the Board's existence the preponder- 
ant part of its activities was devoted to the field of market- 
ing. Inevitably, the problem of production control forced 
itself upon the attention of the Board. Chairman Legge 
and Secretary Hyde in the summer of 1930 undertook a 

handlers, distributors, and processors of, the commodity, as well as co-opera- 
tive associations handling the commodity" were eligible for membership in 
the clearing-house association, it will be seen that it bore a strong resem- 
blance to the marketing agreements which have been put in operation by the 
AAA. Although the clearing-house association device was not extensively 
employed by the Federal Farm Board, we shall have occasion to refer to its 
relation to AAA efforts in subsequent chapters (see pp. 133, 187, 318). 

12 The principal instances were sales to foreign governments in July-Sep- 
tember 1 93 1 — to Germany and China on easy credit terms, and to Brazil in 
exchange for coffee imports. In addition — to what extent and at what cost 
the public has not been informed — the Grain Stabilization Corporation earlier 
sold some wheat for export to move wheat that was "out of position," and 
some to millers on terms that permitted them to compete in flour markets 
abroad. Probably in 1931-32 also some wheat was sold at a loss to private 
buyers abroad. 



ORIGINS ii 

personal campaign amongst the wheat growers, particu- 
larly in the Southwest, to persuade them to reduce their 
production. 13 Mr. Williams conducted a similar crusade 
to deter cotton farmers from putting in an unduly large 
acreage in 193 1. When this proved barren of results, he 
proposed the plowing under of every third row of the 
growing crop without compensation. Mr. Denman pro- 
posed a plan of differential prices for hogs according to 
weight, designed to penalize over-production. And Mr. 
Stone, after becoming chairman of the Board, gave evi- 
dence of lively interest in the problem of land use and the 
possibility of this approach to the development of an 
adequate machinery for the regulation of agricultural 
production. 

The Farm Board's third annual report (December 1932), 
after discussing the "Progress of Co-operatives in Securing 
Adaptation of Production to Marketing Needs," 14 in- 

13 The Board's first annual report commented on the importance and diffi- 
culty of the problem of production control and concluded: 

"Finally, the Board regards measures for prevention of surpluses, through 
control of excessive production, as absolutely essential to stabilizing farm 
prices and farm incomes. Co-operative associations and stabilization corpora- 
tions, supplemented by other devices, may prove able to deal with tempo- 
rary or occasional surpluses. But none of these, nor all together, nor any 
government agency can protect farmers from the consequences of repeated 
or continuous production in excess of market requirements. Adjustments of 
production to market requirements are indispensable, in agriculture as in 
industry, to the solution of surplus problems. The problems of control and 
prevention of agricultural surpluses are vast and complex. The Board has 
approached the task with courage, but not in a mood of lightly experiment- 
ing with large public funds and powerful economic forces. It recognizes that 
experience as well as investigation is essential in working out effective solu- 
tions to these problems. If sound progress is to be made, the experience 
gained in a single year must be utilized to the full in subsequent actions." 
Annual Report of the Federal Farm Board, June 30, 1930, pp. 25-26; see 
also p. 4. 

14 "No co-operative system can successfully accomplish its purposes unless 
production is co-ordinated with marketing. The Agricultural Marketing Act 
recognizes this in its reference to orderly production and prevention of sur- 



12 



MARKETING AGREEMENTS 



eluded a section entitled "Production Adjustments Involve 
Land Utilization," and the following section, on "Surplus 
Control Methods," closed with the comment: 

Experience with stabilization thus demonstrates that no measure 
for improving the price of farm products other than increasing the 
demand of consumers can be effective over a period of years unless 
it provides a more definite control of production than has been 
achieved so far. In a few limited and specialized lines, co-operative 
associations have made progress toward such control. For the great 
staple products, however, the problem still remains for future 
solution. 15 

As the Federal Farm Board experiment followed its 
unhappy course in the midst of a market whose demand 
was drastically curtailed by depression at home and abroad, 
with accompanying restriction of trade, the emphasis of 
students of the problem of agricultural recovery swung 
increasingly toward the devising of effective means for 
securing a remunerative price for that part of the farmer's 
product which was domestically consumed. Two or three 
measures of this sort, based on a principle different from 
that of the McNary-Haugen bills, had been proposed dur- 
ing the years from 1926 forward. And, after passing 
through various drafts, this plan emerged in the first ses- 
sion of the 72d Congress as a series of "domestic allotment" 
measures of which the Hope-Norbeck bills (H. R. 12198 
and S. 4985, July 7 and 11, 1932 respectively) were the 
latest and most complete form. The basic principles of 
this plan were accepted by Governor Roosevelt and were 

pluses. The Board has taken account of it in all its work with co-operatives, 
although it has not yet been able to give the problem of production adjust- 
ments the full attention which it deserves. Moreover, the Agricultural Mar- 
keting Act clearly puts marketing, rather than production control, first in 
order of development." The same, 1932, p. 56- 
15 The same, p. 62. 



ORIGINS 13 

publicly espoused by him in his Topeka speech and sub- 
sequent utterances in his presidential campaign. In revised 
form this domestic allotment proposal was introduced in 
the second session of the 72d Congress, where it passed the 
House on January 12, 1933. 

MARKETING AGREEMENT PROVISION ADDED TO 
THE DOMESTIC ALLOTMENT BILL 

In the course of these revisions of the original domestic 
allotment plan, the procedure of reducing production was 
added to the first idea of increasing farmers' returns on 
the domestically consumed portion of their production. 
The philosophy of reduced production was never very ac- 
ceptable to Mr. Peek, who still laid his major emphasis on 
improvement of distributive and processing practices as the 
means by which adequate farmer remuneration must be 
secured. He did not believe that the government should 
direct its efforts toward restriction of output. While it might 
give direct aid to farmers in an emergency situation, this 
should not take the form of payment for actions designed 
to reduce production. His views were set forth at length in a 
hearing on the Jones bill (H. R. 13991) before the Senate 
Committee on Finance on February 14, 1933. He charac- 
terized the pending farm relief bill simply as: 

. . . emergency agricultural legislation necessary and imperative 
pending the development of a comprehensive national program 
for agriculture and the opening of normal export markets through 
international trade agreements, reciprocal tariffs, application of 
foreign debt to payment in whole or in part for our exports, stabili- 
zation of international currencies, and such other important subjects. 
. . . This emergency legislation should cover only such commodities 
(and, if necessary, competitive substitutes therefor) the prices of 
which in our domestic markets are influenced largely by the prices 
in foreign markets or which are directly affected by the conditions 



M MARKETING AGREEMENTS 

in foreign countries. I should say wheat, cotton, hogs, and possibly 
tobacco. . . . The period of duration should be one year subject to 
extension in whole or in part from year to year upon proclamation 
of the President until a comprehensive national program for agri- 
culture is developed. 16 

Mr. Peek at this juncture revived the marketing agree- 
ment procedure and advocated the amendment of the 
pending bill by the addition of a provision for employing 
this means to aid in the removal of excessive carry-overs 
of farm products from the market. He indicated clearly 
that he attached major importance to this feature and as- 
signed a minor role to the plan of production quotas and 
payment for acreage reduction. In his own words: 

. . . The purpose of such agreements is to put the agencies of 
government behind private enterprise (corporate and co-operative) 
in disposing of surpluses and to aid in maintaining for producers 
the fair exchange value for their commodity. ... If the results 
secured from these marketing agreements are such as to raise prices 
of agricultural commodities to the fair exchange value, there may 
be no occasion for the issuance of adjustment certificates and the 
collection of taxes from the processor. ... If, with the assistance of 
government, it is impossible to dispose of production and surplus at 
home or abroad, through every conceivable marketing channel and 
in manufacture, then the government may step in during this emer- 
gency and offer to arrest the harvesting of a part of any commodity 
by paying to the farmer the local market price, less the cost of 
completing the production, harvesting, preparation for and hauling 
to local market. . . . 17 

The aim to be accomplished by these agreements should be to 
dispose of existing surpluses and to keep the channels of trade open 

16 72 Cong. 2 sess., Agriculture, Hearings on S. res. 315 before the Senate 
Committee on Finance, p. 126. 

17 Mimeographed memorandum on amendments by George N. Peek, Feb. 
2 3> x 933- The view that the use of marketing agreements might obviate "the 
necessity for employing the processing tax and rental and benefit payments" 
was also urged by Senator Robinson in supporting the measure on the floor 
of the Senate. Cong. Record, Apr. 7, 1933, Vol. 77, p. 1376. 



ORIGINS 15 

through every instrumentality at our command; that is, govern- 
mental, producers, processors, and exporters (private or co-opera- 
tive). Prevention of burdensome supply in future should be pro- 
vided for by decreasing prospective production before harvest in the 
areas where it is excessive, compensating the farmer for so decreas- 
ing production. . . . Reduction should not take place in sections or 
areas where the particular products are deficient in supply. To do 
otherwise would be wasteful and uneconomic and would create 
dissatisfaction and unrest. 18 

Mr. Peek's proposed amendment, prepared in collabora- 
tion with Frederick P. Lee and Charles J. Brand, simply 
authorized the making of marketing agreements without 
specifying the terms of the procedure or the character of 
agreements to be entered into. Under his proposal also they 
were to be limited to the "basic" commodities, wheat, cot- 
ton, tobacco, and hogs (and, if declared "basic" by sub- 
sequent proclamation, other grains or meat animals). This 
proposed amendment to the act, however, was promptly 
seized upon by producers of non-basic crops as providing 
a possible means for extending the benefits of government 
assistance to all classes of agricultural producers. The 
move to secure such a broadening of the act was led by the 
American Farm Bureau Federation, largely in response to 
the aggressive interest taken in the matter by the California 
Farm Bureau Federation, representing producers of a great 
variety of minor crops, chiefly horticultural. 19 It appears 

18 72 Cong. 2 sess., Agriculture, Hearings on S. res. 315 before the Senate 
Committee on Finance, p. 127. 

19 Various producer groups in California had for some years been experi- 
menting with different devices for the voluntary control of market supplies, 
in some cases through co-operative associations working alone and in other 

( cases working in conjunction with private handlers, or for compulsory control 
under state law. See E. A. Stokdyk, "Economic and Legal Aspects of Com- 
pulsory Proration in Agricultural Marketing," California Agricultural Ex- 
periment Station Bulletin No. 56$. Some reference to this California experi- 
ence will be found on pp. 127, 133. 



i6 MARKETING AGREEMENTS 

that the support of these groups was decisive in securing 
the inclusion of the marketing agreement provisions in 
the amended Agricultural Adjustment bill which was sub- 
mitted to the new Congress in March 1933. In the process 
they saw to it that the limitation to basic commodities was 
removed and that a measure was secured which held out 
hope of conferring benefit on any class of agricultural 
commodities. 

THE LICENSING PROVISION 

Furthermore, the new bill added a provision for licensing 
processors and distributors. While this section was fre- 
quently discussed by its proponents as a means of making 
marketing agreements effective, or processing tax provi- 
sions equitable, its purpose is stated to be to eliminate unfair 
trade practices or charges. 20 It stood as an independent 
sub-section in the act, apparently co-ordinate with the other 
two major features — production control and marketing 
agreements. Any one of the three devices could be em- 
ployed, within its designated field, 21 singly or in combina- 

20 For results of this phrasing and the ultimate resolving of the ambiguity, 
see pp. 284 ff. 

21 As to their designated field of use, adjustment contracts are limited to 
the enumerated basic commodities (seven in number in the original act, to 
which six commodities were added in the amendment of Apr. 7, 1934, two 
in the amendment of May, 9, 1934 and one in the amendments of August 24, 
: 935)- The marketing agreement provision was made applicable to "any 
agricultural commodity or product thereof," whereas the licensing provision 
covered "any commodity or product thereof or any competing commodity or 
product thereof." It was, however, limited to such commodities "in the cur- 
rent of interstate or foreign commerce." The marketing agreement section 
as originally drawn employed this same phraseology, but, by the amendment 
of Apr. 7, 1934, it was made to read "in the current of, or in competition with, 
or so as to burden, obstruct, or in any way affect interstate or foreign com- 
merce." The significance of this difference and its subsequent removal by 
amendment is discussed in Chapter XII. As originally enacted, the marketing 
agreement section was limited to "processors, associations of producers, and 
others engaged in the handling ... of any agricultural commodity or product 



ORIGINS 17 

tion with one or both of the others. The AAA's position 
with reference to the use of licenses was first stated as 
follows : 

To enforce the terms of the agreements the Secretary is empowered 
to grant licenses to processors and distributors and others in the 
industry or area in which a marketing agreement is in force and 
to fix the terms of the licenses. 22 

Subsequently, this statement was changed to read: 

In his discretion, the Secretary may license the participants of an 
industry handling, in interstate or foreign commerce, an agricul- 
tural commodity or its products, without any marketing agreement 
having been established. 23 

Although the licensing power had been proposed as an 
adjunct to the processing tax and benefit payment feature 
of the law, it has not thus far been resorted to for this 
purpose. 

The licensing feature had not been a part of Mr. Peek's 
original amendment, but he readily agreed to the practical 
necessity for its inclusion, and in the hearings on the bill 
(H. R. 3835), which was introduced after the change of 
administration, he explained the purpose of the licensing 
provision as follows: 

I referred to the practices which are occurring by reason of large 
buyers using their power to buy, to break down the whole structure 
of prices with the people who have to sell. ... So I say within the 
limitations of fair prices to the consumer, if we can straighten the 
back of the industry so that they can correct these bad practices 
themselves through the control of the licensing system, we will 
have gone a long way to remedy that thing. 24 

thereof." By the amendment of Apr. 7, 1934, producers were also included as 
parties to such contracts. See Chap. XI. 

22 The Agricultural Adjustment Act and Its Operation, AAA, October 1933, 
p. 12. 

23 The same, rev. ed., August 1934, p. 12. 

24 73 Cong. 1 sess., Agricultural Emergency Act to Increase Farm Purchas- 



18 MARKETING AGREEMENTS 

Secretary Wallace, in his presentation of the bill at the 
Senate hearings, advocated the licensing provision on the 
ground that it "really furnishes the power to prevent unfair 
trade practices from crippling the act." Assuming a case 
in which a marketing agreement had been entered into 
to protect the common interests of all the parties involved, 
namely, producers, processors, and consumers, he said: 
"Suppose some association or some processor deliberately 
tries to sabotize [sabotage] the agreement entered into, 
we have here the power to make him behave." To this, 
Mr. Frederick P. Lee, who was then acting as special 
counsel for the Department of Agriculture, added: 

The terms of the license would be left to the discretion of the 
Secretary of Agriculture and would in general be such as would 
prevent unfair practices or charges which tended to defeat the 
purpose of the act. It is remedial power too or ancillary power to 
carry out the other authority of the Secretary in trying to arrive at 
a better price for agricultural commodities. The license might be 
suspended for violation of the terms under which it is granted. 25 

In a subsequent statement the Secretary expressed him- 
self as regarding the licensing provisions as "vital" and 
explained their purpose and operation as follows: 

They are not an end in themselves; but are supplementary au- 
thority to effectuate production and marketing programs that might 
otherwise be defeated through practices unfair to> the public or 
producers, or even to the larger number of processors and distribu- 
tors who would be making an earnest attempt to effectuate the 
policy of the bill. To illustrate, I would feel that the policy of the 

ing Power, Hearings on H. R. 3835 before the Senate Committee on Agri- 
culture and Forestry, Mar. 17, 1933, p. 91. This regulatory phase of the 
matter he regarded as entirely distinct from the use of marketing agreements 
as a device for facilitating exports or the domestic disposal of surpluses. 
"That," he said later in his testimony, "is another angle of the situation. That 
is a second point. There are two unrelated points." 
25 The same, p. 11. 



ORIGINS 19 

bill were being defeated should, as a result of a 3-cent processing 
tax on cotton, an excessive increase in price be passed on to the 
consumer. The processing tax, if used, should not be availed of to 
pyramid costs to the consumer. The cotton farmer obtains approxi- 
mately 5 cents for the cotton in a shirt which costs the consumer 
$1.00 or $1.50. A 3-cent tax, even with due allowance for wastage 
and other factors, should not increase that cost more than approxi- 
mately another 5 cents. Should, as a result of the operation of the 
bill, there develop practices or charges unfair to the producer or 
consumer, I would feel that the licensing provision might be called 
into play. Without attempting to speculate as to the existence in 
fact of the many unfair practices frequently alleged to exist in our 
distributive system, it seems necessary that there should be authority 
to restrict such practices when they are shown in fact to exist and 
when they tend to defeat the ether operations under the bill. 26 

Certain cooperatives also, particularly those engaged in 
the handling of fluid milk, felt that the licensing provision 
of the bill might be made useful in remedying the two great 
weaknesses in prevailing co-operative efforts; namely, the 
failure of producers to give full support to their co-operative 
organizations, and destructive price cutting on the part of 
distributors. Charles W. Holman, secretary of the National 
Co-operative Milk Producers' Federation, argued that these 
difficulties could be alleviated if not cured by a universal 
system of licenses. He said : 

The particular provisions that we desire to commend to you 
cover the power giving the Secretary the right to license the trade 
including the co-operatives, and to control in interstate and foreign 
commerce operations so far as the licenses are concerned. . . . There 
are a great many evils existing today in the dairy industry, both 
with regard to price discrimination in country districts, where at 
non-competitive points butterfat is often bought at anywhere from 
4 to 5 cents a pound under the price paid by the same creameries 
at competitive points. Through a licensing system we think that 

26 The same, p. 130. 



20 MARKETING AGREEMENTS 

that could be corrected in great measure and considerable benefit 
would come to our farmers as a result. Also, I think, I can state 
conservatively that while dairy products and the price of milk in the 
cities has fallen tremendously, that fall was not so much due to 
the lack of consumer buying power in the cities for our milk as it 
was due to the lack of co-ordination among the farmers themselves 
and to the lack of co-operation among the distributors themselves, 
the result being a series of disastrous price-cutting tactics which 
forced the price of milk down in many cities of this country to far 
below what there was any consumer demand for it to go down to. 
We believe that through licensing and through conferences with 
the industry, the Secretary of Agriculture can do a great deal toward 
stabilizing conditions in the urban communities where we are 
marketing our milk. 27 

A somewhat different point of view was stressed by 
certain speakers during the course of congressional debates. 
Here the possibility of using the licensing power as an 
aggressive agency for reforming marketing practices was 
stressed. Two such excerpts from the House debates run 
as follows: 

This [Sections 8(3) and (4) relating to licensing] is the most 
important feature in the bill and is the thing that is worrying the 
opponents. I say frankly that unless this is carried in the bill, and 
unless the Secretary secures the services of men to administer this 
act who cannot be controlled by the millers and manufacturers, the 
bill will not be worth the paper that it is written on. The handlers 
of farm products and the processors of farm products object to this 
on the ground that the Secretary, who, by the way, is under the 
President, would be able to regulate business. I am sure that the 
Secretary and the President are not concerned about doing any harm 
to the business of these handlers of and processors of farm products. 
If they will conduct their business on a fair basis, the Secretary 
will not have to use the licensing feature of this bill. I warn you 
now if this section goes out these people being able to combine, 
monopolize, and under trade practice rules, fix and control prices 

27 The same, p. 326. 



ORIGINS 21 

whereby they would be able to take the benefits away from farmers, 
that it would be better to kill the bill. 28 

Paragraph 3 of Section 8 is the licensing provision. It is the 
essence of the contract, it is "the heart of the covenant." Under 
its wise use I expect to see the unreasonable profits of many a 
middleman decreased. Why is bread cheaper in France than in the 
United States when the French farmer is receiving three times as 
much for his wheat as the American farmer? Possibly because 
many a processor is trying to pay interest and dividends upon an old 
and obsolete plant that should have been junked long ago. The 
right to issue and to revoke a license is a broad and sweeping power. 
Under it the Secretary of Agriculture will have his hand upon the 
products of the fields until they reach the ultimate consumer. It is 
said that the American farmer receives but one-third of the price 
paid by the consumer of his products, the processor, the trade, and 
transportation agencies taking two-thirds. Under the licensing pro- 
vision the farmer's share will be materially increased because the 
Secretary will have the right to adjust costs and he will correct many 
a wrong. 29 

In the course of Senate hearings, Senator Wheeler took 
much the same position, charging that the millers and other 
processors were fighting the licensing section because it 
gave the Secretary of Agriculture power to stop unfair 
practices in the processing and distribution of agricultural 
products. "I for one," he said, "shall insist upon the 
licensing feature in this bill if it is the only feature in the 
bill that passes." 30 

With these rather different views of the meaning of its 
marketing agreement and license provisions, the Agricul- 
tural Adjustment Act was passed by Congress and approved 
by the President on May 12, 1933. In the original version 
of the act, these provisions appeared in the following form: 

28 Representative H. P. Fulmer (S. C), Cong. Record, daily ed., Apr. 5, 
1933, p. 1294. 

29 Representative W. M. Pierce (Ore.), the same, Mar. 22, 1933, p. 696. 

30 73 Cong. 1 sess., Hearings on H. R. 3835 before the Senate Committee 
on Agriculture and Forestry, Mar. 17-18, 1933. 



22 MARKETING AGREEMENTS 

Sec. 8. In order to effectuate the declared policy, the Secretary of 
Agriculture shall have power: 



(2) To enter into marketing agreements with processors, as- 
sociations of producers, and others engaged in the handling, in the 
current of interstate or foreign commerce of any agricultural com- 
modity or product thereof, after due notice and opportunity for hear- 
ing to interested parties. The making of any such agreement shall 
not be held to be in violation of any of the anti-trust laws of the 
United States, and any such agreement shall be deemed to be law- 
ful: Provided, That no such agreement shall remain in force after 
the termination of this act. For the purpose of carrying out any 
such agreement the parties thereto shall be eligible for loans from 
the Reconstruction Finance Corporation under Section 5 of the 
Reconstruction Finance Corporation Act. Such loans shall not be 
in excess of such amounts as may be authorized by the agreements. 

(3) To issue licenses permitting processors, associations of pro- 
ducers, and others to engage in the handling, in the current of 
interstate or foreign commerce, of any agricultural commodity or 
product thereof, or any competing commodity or product thereof. 
Such licenses shall be subject to such terms and conditions, not in 
conflict with existing acts of Congress or regulations pursuant there- 
to, as may be necessary to eliminate unfair practices or charges that 
prevent or tend to prevent the effectuation of the declared policy and 
the restoration of normal economic conditions in the marketing of 
such commodities or products and the financing thereof. The Secre- 
tary of Agriculture may suspend or revoke any such license, after 
due notice and opportunity for hearing, for violations of the terms 
or conditions thereof. Any order of the Secretary suspending or 
revoking any such license shall be final if in accordance with law. 
Any such person engaged in such handling without a license as 
required by the Secretary under this section shall be subject to a fine 
of not more than $1,000 for each day during which the violation 
continues. 

(4) To require any licensee under this section to furnish such 
reports as to quantities of agricultural commodities or products 
thereof bought and sold and the prices thereof, and as to trade 



ORIGINS 23 

practices and charges, and to keep such systems of accounts, as 
may be necessary for the purpose of Part 2 of this title. 

Sec. 10(h). For the efficient administration of the provisions 
of Part 2 of this title, the provisions, including penalties, of Sec- 
tions 8, 9, and 10 of the Federal Trade Commission Act, approved 
September 26, 191 4, are made applicable to the jurisdiction, powers, 
and duties of the Secretary in administering the provisions of this 
tide and to any person subject to the provisions of this title, whether 
or not a corporation. Hearings authorized or required under this 
title shall be conducted by the Secretary of Agriculture or such 
officer or employee of the Department as he may designate for the 
purpose. The Secretary may report any violation of any agreement 
entered into under Part 2 of this title to the Attorney-General of the 
United States, who shall cause appropriate proceedings to enforce 
such agreement to be commenced and prosecuted in the proper 
courts of the United States without delay. 31 

Like all other sections of the act, the marketing agree- 
ment and licensing provisions were put into effect as 
emergency measures and were to terminate "whenever the 
President finds and proclaims that the national economic 
emergency in relation to agriculture has ended." Since the 
body of experience with market adjustment has come about 
under these provisions and the comparatively slight amend- 
ments made in 1934, we shall defer discussion of the more 
drastic modifications of 1935 to later sections of the book. 82 

31 48 Stat. L. 31. The manner in which the first sentence of Sub-section 2 
was modified by the amendments of April 7 is indicated below. The deleted 
words appear in brackets and the added words in italics: 

"After due notice and opportunity for hearing, to [To] enter into market- 
ing agreements with processors, producers, associations of producers, and 
others engaged in the handling [in the current of interstate or foreign com- 
merce] of any agricultural commodity or product thereof, [after due notice 
and opportunity for hearing to interested parties] in the current of or in 
competition with, or so as to burden, obstruct, or in any way affect, inter- 
state or foreign commerce. 

32 See p. 16 and note 31 above on 1934 amendments. See Appendix C for 
full text of amendments approved Aug. 24, 1935, and Chaps. XI and XII and 
the index for discussions thereof. 



CHAPTER II 

AGREEMENT PROCEDURES AND POLICY 

Throughout the period in which the Agricultural Ad- 
justment Act was being drafted and considered in Con- 
gress and during the subsequent period when the Adjust- 
ment Administration was being set up, emphasis was laid 
on the fact that the measure provided broad and flexible 
powers instead of laying down a specific and detailed 
course of action. This was due, in part at least, to the fact 
that the Adjustment Act was something of a compromise 
between two schools of thought. Marketing agreement 
and licensing provisions had ultimately been included in 
an act which started out as a production control measure, 
but it still remained to be seen what relative emphasis the 
two methods of attack would be given in the process of 
actual administration. The act was so drawn as to allow 
the test of time to decide which type of approach should 
be used in a given situation or whether some combination 
of the two should be employed. 1 

ADMINISTRATIVE ORGANIZATION AND PROCEDURE 

When it came to the administration of the act, it became 
apparent that the scheme of organization to be used would 

1 Subject of course to the limitation that the production control features of 
the bill were applicable only to an enumerated list of "basic commodities." 

In the conference of farm leaders held in Washington on Mar. 10, 1933 
to make recommendations for the drafting of a farm relief bill, "the question 
as to what plan could best be applied to cotton, what to wheat, to dairy pro- 
ducts, and so on, aroused the most discussion. Once or twice it looked as if 
this might be the rock the conference would split on. . . . The upshot . . . was 
the proposal to make the legislation so flexible that the Secretary could apply 
whatever scheme seemed best adapted to a given commodity." Henry A. 
Wallace, New Frontiers, 1934, p. 163. 

2 4 



PROCEDURES AND POLICY 25 

depend upon which powers were to be invoked, with what 
degree of vigor they were to be put in operation, and the 
general methods and personnel to be used. Even before 
the measure became law, several paper plans of organiza- 
tion had been developed. One quite obvious arrangement 
was to set up functional divisions designed to give special- 
ized attention respectively to operative problems, legal 
problems, financial relations, public information, and the 
like. Equally obvious was the desirability of dividing the 
work into commodity sections. But even within the com- 
modity sections it was insisted by some persons strongly 
influential in shaping the organization that there should 
be a dual scheme — one division having to do with produc- 
tion problems and activities and such production control 
efforts as might be launched, and the other concerned with 
relations with processors and distributors of the given 
commodity. 

The plan of organization which emerged from this 
initial attack on the administrative problem is shown 
graphically in the chart on page 26. Besides an In- 
formation and Publicity Division and a Finance Division, 
there were two major operative divisions — one for produc- 
tion activities and the other for matters relating to proc- 
essing and marketing. Of the four commodity sections 
under the Production Division, three of them — wheat, corn 
and hogs, and cotton — had a corresponding section in the 
Processing and Marketing Division. In the latter division 
there was also a section covering licensing and enforce- 
ment, another for foreign trade, and two others for food 
products and fisheries respectively (dealing entirely with 
code matters). Besides these sections, which classified ex- 
clusively with one or the other division, there were four 
sections which merged the two lines of function and were 



26 



MARKETING AGREEMENTS 



responsible to the directors of both the Production Divi- 
sion and the Processing and Marketing Division. These 
dually organized sections were those for tobacco, dairy, 
rice, and special crops. In the course of time this form of 

Organization of the Agricultural Adjustment 
Administration, 1933 



DEPARTMENT OF AGRICULTURE 

HENRY A.WALLACE. SECRETARY 




organization came to be accepted as the most practical way 
of handling the work of the various commodity sections, 
and in the reorganization effected in January 1934 the 
Production Division and the Processing and Marketing 
Division were merged into a single Commodities Division. 
Separate processing sections were retained for only two 



PROCEDURES AND POLICY 



27 



commodities— grain and cotton. 2 An outline sketch of the 
revised organization (with minor changes later intro- 
duced) appears below. 3 

Organization of the Agricultural Adjustment 
Administration, 1934 




DEPARTMENT OF AGRICULTURE 

HENRY A. WALLACE. SECRETARY 



AGRICULTURAL ADJUSTMENT ADMINISTRATION 

CHESTER C.DAVIS.ADMINISTRATOR 



INFORMATION 



Alfred D. Stedman 

Assistant Administrator 
Frederick C. Howe 



Howard R. Tolley 
Assistant 



LEGAL 
DIVISION 



N. Frank 
General Counsel 



! BUREAU 

OF 
! AGRICULTURAL 
• ECONOMICS 



FINANCE 
DIVISION 



COMMODITIES 
DIVISION 



V. A. Christgau 

Assistant Administrator 



CORN AND HOGS 



CATTLE AND SHEEP 



GENERAL CROPS 



OFFICE 

OF 

COMPTROLLER 



John B. Payne 



Comptroller 



OFFICE 

OF 

BUSINESS 

MANAGEMENT 

T. Weed Harvey 
Assistant to Administrator 



COMPLIANCE 



INVESTIGATION 



2 Likewise the original Replacement Crops and Foreign Trade Sections were 
then transferred to the new Division of Program Planning; Licensing and 
Enforcement was transferred in part to the Legal Division and in part 
to a new Division of Field Investigations; and Fisheries (involving code ques- 
tions only) to NRA. The work of the Code Analysis Section, which in the 
first plan of organization was attached directly to the Administrator's office, 
was put under direct charge of the assistant director of the Commodities Sec- 
tion. The Division of Food Products disappeared with the return of the 
major part of the code work to NRA. 

3 For a second reorganization effected in February 1935, see p. 232. 



28 MARKETING AGREEMENTS 

On the day after the act was approved, George N. Peek 
was designated administrator, and Charles J. Brand, co- 
administrator. The former had been a business executive 
for many years and a member of the War Industries Board 
from 1917 to 1919. The latter had been chief of the Bureau 
of Markets of the United States Department of Agriculture 
for six years after its founding, thereafter successively vice- 
president of a large fruit and vegetable distributing con- 
cern, consulting specialist in marketing to Secretary of 
Agriculture Henry C. Wallace, and executive secretary of 
the National Fertilizer Association. The entrusting of the 
administrative task to these two men of wide experience 
in industries closely connected with agriculture seemed to 
assure early and vigorous attempts to put the marketing 
agreement feature of the act to the test of practical use. 4 
Furthermore, both of them had manifested particular in- 
terest in the marketing agreement approach to the problem 
of agricultural adjustment. 

Specific proposals for applying the marketing agree- 
ment provisions of the act were promptly forthcoming not 
only from those who originally sponsored the idea but also 
from others who, though originally indifferent or hostile, 
now became interested in its possibilities as a mode of at- 
tack upon particular problems. These included many 
processors and distributors of farm products, who evidenced 
a desire to avail themselves of this feature of the act as soon 
as the starting gun should be fired. The season was already 
well advanced, summer was coming on, and many crops 

4 On June 22 H. R. Tolley, director of the Giannini Foundation of Agricul- 
tural Economics of the University of California, was made head of the Special 
Crops Section (since changed to General Crops), which was concerned chiefly 
with marketing agreements. He was thoroughly familiar with the problems 
of California fruit and vegetable producers and with the developments in that 
state leading up to the passage of a proration law analogous in its operation 
to the marketing agreement feature of the Agricultural Adjustment Act. 



PROCEDURES AND POLICY 29 

were nearing harvest. A large crop of cotton was in 
prospect in the South. The cutting of wheat was soon to 
begin in the Southwest. The production of milk, stimu- 
lated by good seasonal pastures, was at a high rate. 
Tobacco and rice crops were moving toward maturity. 
For the lesser crops the desire for action of some sort was 
no less acute. California canning peaches were almost 
ready to be picked. Deciduous fruits, pears, peaches, 
berries, and other products which are shipped fresh, were 
soon to flow to market in volume. Day by day, everywhere, 
growing crops on farms were moving forward toward 
maturity and the market. "Wherever we turn to deal with 
an agricultural commodity," remarked George Peek, "we 
have in prospect a race with the sun." 

The most ambitious proposals brought forward were 
those which contemplated the use of marketing agree- 
ments as the major program for the great "basic" crops. 
Suggestions of this character for the several fluid milk 
markets were brought forward by the milk producers' co- 
operatives, and for wheat, tobacco, and livestock by men 
within the Administration, though the latter did not get 
far. 5 

In the case of rice, marketing agreements were put 
forward as the primary device, to be applied in such a way 
that production control could be achieved without resort 
to processing taxes or benefit payments. Even where a 
production control program got under way vigorously and 
soon, marketing agreements were sometimes looked upon 
as supplementary in the accomplishment of specific pur- 
poses. For example, a marketing agreement for the export 
of surplus wheat from the Pacific Northwest was devel- 

5 The hope of dealing with wheat through a marketing agreement per- 
sisted from the beginning of AAA activities at least until late October. See 
J. S. Davis, Wheat and the AAA, pp. 231-33. 



3 o MARKETING AGREEMENTS 

oped alongside the major program for production control 
of wheat. Agreements were negotiated also for the prin- 
cipal kinds of tobacco. One of them constituted the whole 
program for the type to which it was applied and estab- 
lished a mechanism for controlling the amount to be put 
on the market. The others were simply price and quantity 
fixing agreements covering the 1933 crop, pending the de- 
velopment of production control plans. Finally, there was 
a host of proposals for dealing with a long list of non- 
basic commodities — agreements for the allocation of the 
market, the withholding of excessive supplies, the naming 
of producers' prices, the fixing of resale prices in the trade, 
or of maximum marketing charges. 

Of still different character were proposals for marketing 
agreements applying to either basic or general crops and 
designed to establish fair trade practices. Several of these 
were advanced by the respective agricultural trades, notably 
the sugar refiners, the meat packers, and ice-cream manu- 
facturers. These proposals were in general based upon the 
idea of industry self-government, which was in the summer 
of 1933 receiving so much attention in connection with the 
development of NRA codes. A word should be said there- 
fore concerning the relations between the AAA and the 
NRA. 

In our discussion of the origins of the marketing agree- 
ment provisions of the Agricultural Adjustment Act, we 
noted (pages 17-21) the fact that some of its proponents 
looked upon this device as a potential means of regulating 
processing and distributing charges and the trade practices 
of those who handle agricultural commodities after they 
leave the farmers' hands. Administrator Brand was par- 
ticularly interested in the problem of regulating trade prac- 
tices and believed strongly that such regulation could be 



PROCEDURES AND POLICY 31 

accomplished very largely by the respective trades them- 
selves, through the adoption and self-administration of 
codes of fair competition. However, when the National 
Industrial Recovery Act was passed (June 16, 1933), it 
provided a very similar type of procedure for all lines of 
business. The agricultural trades were eligible for NRA 
codes as well as AAA marketing agreements. This situa- 
tion seemed to promise not only confusion and duplica- 
tion of effort but also the possibility that the regulation of 
trade practices might be undertaken by an agency which 
was unfamiliar with, and possibly unsympathetic to, the 
problems and hopes of the agricultural industry which it 
was intended to safeguard under the Adjustment Act. In 
this situation, Administrators Peek and Brand requested 
the President to place jurisdiction over codes for the agri- 
cultural trades in the hands of the Secretary of Agriculture, 
to be administered through the AAA. With the acquies- 
cence of General Johnson and his general counsel, Donald 
Richberg, this transfer was effected on June 26. 6 There 
was thus placed upon the Agricultural Adjustment 
Administration the responsibility for receiving proposals 
for codes as well as marketing agreements, and such 
proposals began to come forward promptly and in 
great numbers. Between June 26 and December 6, 1933, 
over 450 were dealt with in the AAA. 7 

6 Executive Order No. 6182. Jurisdiction over questions of hours and wages 
was excepted in this transfer and retained by the NRA. 

Codes transferred to the AAA by Executive Order No. 6182 were limited to 
milk and its products, tobacco and its products, and all food and foodstuffs. 
By a subsequent order (No. 6207), dated Oct. 20, 1933, the list was consid- 
erably extended. 

7 Mr. Brand resigned as coadministrator effective Sept. 30, and Adminis- 
trator Peek resigned on Dec. 8. One month after Mr. Peek's resignation, Presi- 
dent Roosevelt ordered those codes which had been under the jurisdiction of 
the AAA, but which covered lines of business beyond the first processing of 



32 MARKETING AGREEMENTS 

In dealing with this flood of proposals for marketing 
agreements and codes, the AAA sought to avoid the double 
danger of seeming on the one hand to lack aggressive in- 
terest, and on the other to adopt an attitude of arbitrary 
approval or disapproval. Its avowed intention was to per- 
fect a process of discussion whereby a proposal for a mar- 
keting agreement, whether initiated within the govern- 
ment or outside, would move forward through evolutionary 
stages of proposal and counter-proposal, argument, and 
debate. Secretary Wallace emphasized this in a press con- 
ference on May 13, when he stated that neither a czar nor 
a group of czars would administer the act, but that rather 
the Secretary and administrators would act as "catalyzers" 
to bring about a definite formation of group opinion and 
then put the resultant policy into effect. The only in- 
sistence would be that farmers and others get together to 
understand the facts. 8 

The law prescribed giving public notice and providing 
opportunity for formal hearing on all proposals before an 
agreement was adopted. While details of procedure dif- 
fered, the usual process was to begin with informal con- 
versations between the commodity marketing groups in- 
volved and the corresponding commodity sections of the 
Agricultural Adjustment Administration. When support 
for a proposal began to emerge clearly, it entered the more 
formal stages of procedure. 9 The processors and handlers 

agricultural commodities, to be transferred back to the NRA. This Executive 
Order (No. 6551) considerably lightened the burden on the AAA. 

8 M. S. Eisenhower, "Summary of Discussion at Press Conference Held in 
the Office of Secretary of Agriculture Henry A. Wallace on May 13, 1933," 
Extension Service Stencil No. 6g^i, U. S. Department of Agriculture. 

9 Many proposals, however, did not survive the earliest stages of casual dis- 
cussion. In some cases a proposal was more or less automatically eliminated 
because of the different program of action which was adopted by the Adjust- 
ment Administration. The outstanding example of this occurred in connec- 



PROCEDURES AND POLICY 33 

sponsoring the proposal were asked to submit copies to the 
Adjustment Administration. The appropriate commodity 
section then analyzed the proposal with particular refer- 
ence to its possibilities for improving the income of pro- 
ducers. The Consumers' Counsel examined it to see if an 
undue burden was to be placed upon consumers. The Legal 
Division, that is, the General Counsel and his staff, passed 
upon the legal aspects of the form in which it was drawn. 10 
The next step was for the Chief of the Commodity Section 
to assume responsibility for revisions suggested as a result 
of his own analysis, that of the Consumers' Counsel, and 
that of the General Counsel. These he transmitted to the 
handlers and processors, making arrangements at the same 
time for an informal conference between them and repre- 
sentatives of the AAA. 

After some understanding had been arrived at, the next 
formal step was for the handlers and processors sponsoring 
the proposal to file an application for a formal hearing 
upon the revised draft. Within the Adjustment Adminis- 
tration the advisability of proceeding to public hearing 
was passed upon by the Commodity Section, and also by 
the Production Division office, the Processing and Mar- 
keting Division office, the Consumers' Counsel, the Legal 
Division, the Administrator, and, finally, by the Secre- 
tion with programs for the major commodities — cotton, wheat, and corn. 
When acreage control for these crops was decided upon, any thought of em- 
ploying marketing agreements as the sole or principal means of dealing with 
them was pushed into the background. With some proposals the very first 
stages of discussion revealed such a lack of data relative to the commodity 
that further progress was impossible. In other cases such conflicts of interest 
and opinion were aroused that deadlock resulted and further effort was 
abandoned. 

10 As a guide to those concerned with the drafting of marketing agree- 
ments or codes, the AAA issued on Oct. 24, 1933 a 15-page pamphlet en- 
titled, Statement of General Policies and Model Drafts of Marketing Agree- 
ments and Codes of Fair Competition. 



34 MARKETING AGREEMENTS 

tary's office. Favorable action by these cleared the way for 
the revised proposal to move on to public hearing. The 
distribution of public notices, copies of proposed agree- 
ments, and press releases was relied upon to give full in- 
formation regarding the hearings and proposals under 
consideration. At the hearings, all interested parties, in- 
cluding growers, handlers, and processors, and represen- 
tatives from the Adjustment Administration itself, were 
given opportunity to present argument either for or 
against the proposals and to suggest changes. There was 
frequent emphasis on the point early made by Secretary 
Wallace, that the object of a hearing is to develop the facts 
concerning the commodity and the proposal. 11 

After public hearing final revision was very commonly 
delayed as a result of disagreements that arose. Rarely 
were the sponsors of a proposal able to get it through the 
hearing without opposition. Usually individuals and 
groups appeared to argue that as a whole or through some 
of its provisions it would injure them. While clash of 
interest was not especially violent at this stage, the whole 
development of the marketing agreement idea was accom- 
panied by more or less conflict. The public hearing at- 
tracted attention to these conflicts and revealed how com- 
plex and tedious was the process of evolving an "agree- 
ment" out of a proposal. 

To think of this conflict as being merely between two 
groups, one advocating the proposal for a marketing agree- 
ment and the other opposing it, is to over-simplify the 
picture. Actually, in most cases both support and opposi- 
tion arose from complex groupings of interests. In these it 
is possible to find many odd combinations — and divisions — 
of growers and processors. There were brought to light 

11 Hearings are open to the public and an official record of all argument and 
discussion is made, transcripts of which are open for public inspection at the 
Chief Hearing Clerk's office, AAA, Washington, D. C. 



PROCEDURES AND POLICY 35 

not only antagonisms of interests between growers and 
the agricultural trades, but many inter-grower and inter- 
agricultural trade group conflicts as well. 

Take, for illustration, the alignment of grower against 
grower. Those producing the same agricultural com- 
modity were often lined up in hostile camps as, for instance, 
the producers of apples in rival areas. Growers producing 
the same product for the same market were commonly 
unable to unite in support of a given marketing agree- 
ment, but instead separated into at least two groups, one 
supporting it and the other — loosely referred to as "inde- 
pendents" — opposing it. Among the agricultural trades 
also, particularly among those handling competing prod- 
ucts, there were often violent and bitter battles. The fight 
among butter manufacturers, oleomargarine manufac- 
turers, cottonseed oil producers, and importers of fats and 
oils, is an illustration. Struggles between large firms and 
small firms or between the trade association members and 
the "independents" were only to be expected in the dis- 
cussion of any marketing agreement proposal. 

Long-standing business wars were brought to the front. 
Within the tobacco manufacturing trade a dramatic 
struggle was staged between the manufacturers of four 
well-known cigarettes and the manufacturers of com- 
peting "10-cent" brands. Contests within the distribution 
field were many. The chronic antagonism between chain 
stores and independents was carried into hearings and 
conferences with vigor. Older distributing agencies tried 
to close in upon the newer upstarts, the peddlers, and in- 
dependent truckers. These "new businesses" resented pro- 
posals to curtail their business or growth and fought back. 
Hot battles developed between old-line established brokers 
and wholesalers and the great chains. 

These struggles within the groups of growers, and 



36 MARKETING AGREEMENTS 

within the groups of market interest, often became com- 
plicated by combinations of growers with shippers or 
processors to oppose some other group or groups. In the 
hearing upon proposed agreements for the citrus fruit in- 
dustry the combined grower and handler interests of 
Florida were often found opposing the combined grower 
and handler interests of California. Perhaps as compli- 
cated and as bewildering a variety of cross-currents of in- 
terest as could be uncovered anywhere arose out of the 
proposals to set up marketing agreements for sugar. The 
conflicts were old, but they rose to a higher pitch as domes- 
tic growers and processors of cane and beets were pitted 
against planters and manufacturers of the Islands. Beet 
growers contested cane growers over allotments, and in- 
dependent refiners fought the refiners of the trade associa- 
tion. Not infrequently the conflict of group interests took 
on a sectional alignment, with resultant repercussions of 
a political character. 

The AAA thus found its task both large and difficult. 
It had been relatively easy to welcome with open arms 
proposals for marketing agreements. To encourage dis- 
cussion, debate, and argument "to bring out the facts" was 
not especially difficult. But to reconcile the "facts" pre- 
sented by groups with conflicting interests was a far harder 
matter. After public hearings much reconciling of con- 
flicting interests had to be effected and compromises ar- 
rived at, with the result that the agreements finally adopted 
bore no very close resemblance to the proposals originally 
offered. 12 The whole process of evolving marketing agree- 
ments was rendered still more difficult by the fact that the 

12 To some extent labor could be economized by using the first agreement 
in a given field as a pattern for subsequent undertakings in the same com- 
modity field. 



PROCEDURES AND POLICY 37 

Adjustment Administration itself had no unanimity of 
view as to the precise goals to be sought or the course which 
would be followed in reaching them. Some account of these 
divergencies of viewpoint and of the changes of emphasis 
that took place with the passage of time is therefore 
necessary. 

PRINCIPAL VIEWS AS TO THE USE OF 
MARKETING AGREEMENTS 

In tracing the origin of the marketing agreement phase 
of the Agricultural Adjustment Act in the preceding 
chapter, we presented in some detail the statements of 
George N. Peek. Since he became the first administrator 
of the act, we shall recapitulate here the views which he 
at that time entertained with reference to its operation. 
His various utterances indicate that he believed the wise 
course would consist of three steps, as follows : 

1. To approach processors and distributors, seeking to 
get them, through unofficial voluntary agreements among 
themselves or under AAA marketing agreements, to under- 
take to pay a remunerative price to producers. In many 
cases this could be done and the whole supply disposed of 
through the regular channels of distribution and use. 

2. To employ agreements like the above to handle all 
such supplies as could be disposed of at remunerative prices 
through the regular channels, but to supplement such dis- 
tribution by finding special ways of disposing, in either 
export or domestic markets, of any surplus not marketable 
at this price level. 

3. If all such efforts should fail thus to clear the market 
of supplies which depressed prices below the parity level, 
then to invoke the production adjustment feature of the 
act to check current or future output. 

In a press release given out by Mr. Peek on assuming 



38 MARKETING AGREEMENTS 

the office of administrator, the idea that governmental 
action would be resorted to only when other efforts failed 
was further elaborated as follows: 

To the food and textile industries, I want to make it clear that 
the spirit and purpose will be to act with as little interference with 
established institutions and methods — indeed with as little admin- 
istration of any kind as is consistent with the fixed purpose of the 
law; namely, to raise farm prices. It is my opinion that much of 
that purpose can be accomplished by these industries without any- 
thing more than the aid that the government and agriculture can 
and will give them. 

The first step will be to discuss with industries and trades our 
purposes, to ask them what they need from farmers and from 
government, and to call upon them, with the help of those con- 
cerned, to work out the difficult task themselves in such manner as 
will least interfere with their business and established methods, with 
as little government interference in their affairs as is reasonably 
possible. But none will be permitted to forget the purpose of the 
legislation — to raise farm prices in the national interest. 13 

To carry out this policy of securing desired results as 
largely as possible through voluntary action within the 
respective trades, Coadministrator Brand promptly brought 
about the setting up of a Food Industries Advisory Board 
within a commercial group which in 1929 handled 12 bil- 
lion dollars of product. Through this Board's good offices, 
he hoped to be able to secure adhesion of these industries 
to a program of voluntarily higher prices for agricultural 
products. 14 In a letter on August 26 Administrators Peek 
and Brand suggested: 

13 AAA Press Release No. 1159-33, May 15, 1933, p. 2. 

14 Mr. Brand's views were stated before the Inter-Mountain Economic Con- 
ference on Sept. 22, as follows: "The trade agreement and licensing pro- 
visions of the Farm Act give us an opportunity to do something about pre- 
venting waste in distribution. Distribution costs went up during the war, and 
have not come down since then. The spread between what the farmer gets 
and what the consumer has to pay has not narrowed nearly so much as both 



PROCEDURES AND POLICY 39 

That members of the industry purchasing agricultural commodi- 
ties from farmers will, in making such purchases, re-establish prices 
to farmers at a level that will give agricultural commodities a pur- 
chasing power with respect to articles that farmers buy, equivalent to 
the purchasing power of agricultural commodities in the pre-war 
period August 1909- July 1914. 

That members of the industry will accomplish this in one of two 
ways: First, by making such purchases at parity prices whenever 
practicable at present without entering into a marketing agree- 

the farmer and the consumer have a right to expect. So-called service charges 
that are figured into our food bill cost too much. The difference in the re- 
ward for growing food and for processing and distributing it is tremendous. 
On the average retail food prices in 1932 were 10 per cent higher than they 
were in 1910; farm prices were 40 per cent lower. . . . Spreads are too large 
between country and city prices in the case of many commodities." Marketing 
agreements for fruit, he explained, were "intended to set up machinery for 
the operation of proration plans under official supervision, with equitable treat- 
ment of the shippers and growers in the several shipping districts, so that all 
may contribute to the success of the plan by withholding a portion of their 
shipments when necessary." ("Industrial and Agricultural Adjustments," 
AAA Press Release No. 660-34, pp. 15-16, 17, 18.) 

General Westervelt had on July 27 expressed his position on marketing 
agreements as follows: "The AAA . . . seeks to raise the incomes of the 
farmers by two principal means: (1) By getting their co-operation in neces- 
sary adjustments calculated to bring supply into a better balance with de- 
mand; and (2) by fostering trade agreements among producers, processors, 
and distributors of agricultural products, so that competitive wastes may be 
eliminated, trade practices improved, surpluses moved into markets for con- 
sumption, and producers' prices raised. I imagine the co-operative associations 
will specially welcome the, regulation of trade practices, and the raising of 
trade ethics, under marketing agreements. They have much experience of 
unfair competition. . . . But let me. in closing remind you that the Agricul- 
tural Adjustment Act deals primarily with production, and only secondarily 
with marketing. It rests on the principle that price control comes ultimately 
through production control, and in no other way. Controlling the channels 
through which goods flow to market, without simultaneously controlling the 
sources of the supply, accomplishes little. All groups that co-operate with the 
Administration in marketing agreements must join in the effort to regulate 
production, even if their interest lies principally in the marketing process. 
That is the only condition under which the Administration will accept their 
help." ("How the Marketing Act Will Function in the Marketing of Farm 
Commodities," Proceedings of the American Institute of Co-operation, 1933, 
pp. 31, 34; also reprinted as AAA Press Release No. 143-34, PP- 4> 8.) 



4 o MARKETING AGREEMENTS 

ment; or else, second, by carrying out marketing agreements under 
the Agricultural Adjustment Act that will provide such prices to 
farmers, proposed marketing agreements to this end to be sub- 
mitted to the Secretary of Agriculture not later than November i, 
next. 



Where a marketing agreement is found necessary in order to 
carry out the contemplated purposes, the agreement should deal 
with relations between producers and processors of agricultural 
commodities and the distributive machinery for the products. Provi- 
sions for quotas and restricted shipments may be included where 
necessary, but should not be included if they will tend to restrict 
or limit competition without providing satisfactory price assurance 
to producers. 15 

To this letter the Food Industries Advisory Board re- 
plied sympathetically, pledging itself "to use all reasonable 
efforts to secure from industry an active co-operation in 
obtaining [parity prices] for the farmer," and adding: 

Whenever it is deemed advisable by the industry, commissions 
and handling, storage, financing and similar charges for services 
within the control of the industry will be regulated to the end that 
proper protection will be given to the producer and the consumer. 

That a schedule of fair trade practices for the members of the 
industry shall be adopted for the purpose of protecting its members 
and for protecting the producers and consumers from unfair com- 
petitive practices. 

The Board pointed out, however, that: 

. . . Price control to secure agricultural parity of purchasing 
power can be obtained only by agreements when binding upon 
both producers and processors, or by the control of production and 
equally the control of transportation that the movement to market 
may be in consonance with the effective demand. 

We feel that the initiation of measures designed to bring parity 
of purchasing power for farm products rests in and with the Agri- 

15 AAA Press Release No. 674-34, Sept. 22, 1933, pp. 2-3, 5. 



PROCEDURES AND POLICY 41 

cultural Department and that when and as acceptable methods are 
devised we will endeavor to secure the fullest co-operation to the 
success thereof. 16 

Between the time of sending his letter and the receipt 
of the Advisory Board's reply, Mr. Peek had again sounded 
the militant note used in his discussion of distributors' 
margins and practices prior to the passage of the act (see 
page 17). In a radio talk on September 1 he said: 

The trade agreement and licensing provisions of the Farm Act 
give us an opportunity to do something about preventing waste in 
distribution, which is distinctly in the consumer's interest, as well 
as the producer's. ... Of the fifteen companies that reported the 
largest corporate profits made in this country in 1932, nine dealt in 
food and tobacco. Our biggest tobacco companies reported last 
year a total net profit of about 150 million dollars. That was almost 
as great as the entire amount of money they paid American farmers 
for their tobacco crop. In addition they paid to the government 
in taxes about 450 million dollars, which is 50 per cent more than 
the farmer received for his tobacco and the profits of the industry 
added together. 

When you get a situation like that, with the big distributors of 
farm crops making enormous profits over and above high costs of 
distribution, at a time when farm prices were the lowest in American 
history, it is worth looking into. . . . My own view is that we are 
suffering in this country from an over-capacity of industrial facilities 
for which both the farmer and the consumer are paying Agricul- 
ture is cutting down its plant, but a large part of industry is still 
trying to maintain boom-time capacity and capital values. This is 
being done at the expense of farmers and consumers. 

The public should no longer tolerate it. Industry must reduce 
its over-capacity. It cannot look for its relief by taking it out of the 
farmer's hide. This may mean smaller corporate profits, but fair- 
minded and intelligent business men know that they stand only to 
gain, in the end, by increasing the farmer's buying power. If the 
attempt were made to clamp down on him again, it would mean 

16 The same, pp. 6-7. 



42 MARKETING AGREEMENTS 

cutting the ground out from under the whole recovery program. 
I believe everybody in the nation should understand that. . . , 17 

In another broadcast later in September Mr. Peek re- 
peated his statement made to the food and textile industries 
(page 38) when he assumed office, adding a ". . . welcome 
of the pledge from the Food Industries Board of its active 
co-operation. To me," he said, "it represents a social attitude 
that will mean much for the farmer and the nation. If 
this Administration succeeds in firmly implanting the 
policy of justice and parity for the farmers in the field of 
business, finance and industry will have made a great con- 
tribution to our national welfare. This concept has been 
eagerly sought by all who have had the interests of the 
farmers at heart. It has been accepted by the government 
as a national policy. We now have definite assurance that 
business will adopt it as a working principle." 18 

In spite of these courteous exchanges, however, this line 
of attack on the problem soon came to an impasse. The 
AAA had invited the food trades to draft a general or 
"blanket" code to be followed by special codes of fair com- 
petitive practice for the several trades. Coadministrator 
Brand believed that such steps would be of material benefit 
to our agricultural trade and price situation. The food 
industries warily refrained from committing themselves in 
any general way to this task, preferring rather to ask the 
AAA to proceed with such steps as it thought fit, where- 
upon they would consider such specific proposals on their 
merits. Brand was at one with the trades in his belief 
that such regulatory devices should be administered by the 
trades themselves through their own code authorities if 

17 AAA Press Release No. 521-34, Sept. 1, 1933, pp. 4-5. 

18 AAA Press Release No. 690-34, Sept. 24, 1933, p. 3. 



PROCEDURES AND POLICY 43 

possible, with marketing agreements second choice, and 
licenses only an unwelcome third alternative. 

There was, however, in the AAA a large faction which 
despaired of any material gain through self-proposed and 
self -administered regulation from within the trades. They 
looked to making agreements which the majority of the 
trade could be brought to accept voluntarily, these to be 
made binding on the less socially minded minority through 
use of the licensing process. Although individuals or in- 
dustries in the food trade group gave prompt and generous 
co-operation to specific requests made of them by the 
AAA, 19 the code and agreement proposals submitted by 
this industry group were generally regarded in the General 
Counsel's division, by the Consumers' Counsel staff, and 
in particular commodity divisions to which they were 
referred, as quite unacceptable. 20 More than any other 
thing, the question on which these proposals went aground 
was one of access by government representatives to books 
and records of the companies — ancient rock of contention 
at least since the Federal Trade Commission's study of the 
meat packing industry 20 years ago. 21 

The food trades on their part interpreted the situation as 
meaning that the "young liberals" were seeking to use 
codes, agreements, and licenses as a means of bringing 
about "government control of business." They therefore 
backed away from further effort to develop such codes and 
agreements and the Food Industries Advisory Board 
quietly faded out of the picture sometime in October. 
Meanwhile somewhat similar controversies were develop- 
ing in connection with such milk marketing agreements as 

19 See p. 179. 

20 See Harold B. Rowe, Tobacco under the AAA, p. 113; D. A. FitzGerald, 
Livestock under the AAA, p. 177. 

21 Later aspects of the continuing controversy are discussed on pp. 258, 309. 



44 MARKETING AGREEMENTS 

had been put in effect. Throughout this period, up to the 
end of 1933, something of a process of disillusionment was 
going on. Those who hoped to use marketing agreements 
and food industry codes to peg prices in their own interest, 
or to protect margins and handling charges, found that 
such proposals were sure to run against a snag at one or 
more places in the AAA. On the other hand, those in the 
Adjustment Administration who had expected substantial 
progress toward price enhancement or marketing reform 
through the use of marketing agreements were consider- 
ably dashed by the difficulties encountered. 

In reviewing the efforts made to utilize the marketing 
agreement and licensing features of the Adjustment Act 
in the period up to Administrator Peek's resignation in 
December 1933, three points stand out. First was the 
Administrator's desire to accomplish by this means an 
enhancement of farmers' prices and reduction of carry- 
overs sufficient to satisfy the stated purposes of the act 
with little or (ideally) no resort to the production control 
part of the measure. Second was the desire of various 
persons within the Adjustment Administration and of 
groups outside to see that any agreements drawn to secure 
marketing agreements (and/or codes) should stabilize the 
business and, so far as possible, assure the prosperity of 
the processors and distributors (including co-operative as- 
sociations) involved in the several situations. 22 Third was 
the emphasis which certain persons in the Adjustment 
Administration placed upon the achievement of economic 
reforms largely in the consumer's interest through the 
agency of marketing agreements. Such reforms included 

22 This included a desire to utilize the opportunities for concerted action 
and exemption from the anti-trust laws as a means of effecting economies in 
the conduct of their business. 



PROCEDURES AND POLICY 45 

more rigid "pure food" requirements, the reduction of 
advertising costs, simplification of service, and the like. 
The attempt to travel toward these three goals at once had 
resulted in procedures which consumed time, increased 
friction, and reduced results. 

The coming of a new Administrator in the person of 
Chester C. Davis promised to inaugurate in 1934 a greater 
unification of purpose within the Adjustment Adminis- 
tration than had been apparent in 1933 with reference to 
the part which marketing agreements were to play in the 
whole adjustment effort. This meant acceptance of the idea 
that production control was basic to the whole farm relief 
effort and that unprofitable surpluses could not be evaded 
by any number or kind of price, quantity, or margin agree- 
ments that processors and distributors could be induced 
to enter into. 

Such had been the basic philosophy of Secretary Wallace 
throughout the life of the Adjustment Act, during the 
period of its drafting and passage, and for many years 
before, as indicated by his editorial writings in Wallaces' 
Farmer. His discussion of the marketing agreement fea- 
ture during hearings on the bill 23 showed clearly that he 
accepted it only as a supplement to, and by no means as a 
substitute for, production control devices. Commenting on 
the act, shortly after its passage, he said : "Marketing agree- 
ments may be used on other commodities [than dairy 
products] to supplement a program of acreage reduc- 
tion." 24 Likewise in discussing results under the act before 
the Senate Committee on Agriculture in January 1934, 
he made his whole approach in terms of production con- 

23 73 Cong. 1 sess., Agricultural Emergency Act to Increase Farm Purchas- 
ing Power, Hearings on H. R. 3835 before the Senate Committee on Agricul- 
ture and Forestry, Mar. 17-28, 1933, pp. 7 ff., 128 ff. 

24 New Yor\ Times, June 4, 1933, Sec. VIII, p. 3. 



46 MARKETING AGREEMENTS 

trol, and referred even to the rice and tobacco situations 
which had been handled entirely through marketing agree- 
ments as showing "that satisfactory production control 
measures have been developed and will begin to take effect 
during the 1934 crop season," and that in perishable fruits 
and vegetables "where only marketing agreements were 
available under the act, material progress has been made 
in developing marketing agreements to regulate market- 
ing of such products and to prevent excessive pressure of 
production upon the available markets." 25 After discuss- 
ing the need and possibilities of production control in the 
livestock industry, he called attention to the fact that "a 
complete program for the production of all dairy products 
is being developed . . . and steps will be taken to secure the 
adherence of dairy farmers through the country to the 
program so that definite steps can be taken to correct the 
underlying oversupply situation." 26 
Later the same month he told a Wisconsin audience that: 

. . . Ever since the passage of the Farm Act, the dairy industry has 
been trying to find short-cuts to the Promised Land. First, it was 
said that no adjustment was necessary, and that in due time the 
general industrial recovery would put the dairyman back on his 
feet. Next, many of the leaders seized upon the marketing agree- 
ment section of the act as something which might bring a maximum 
of benefit at a minimum of trouble and risk. . . . We believe it 
essential that the dairy program should contain as one of its basic 
features such a method of production control that will restrain 
production to keep it in step with increases in consumer purchasing 
power and prevent supply from outrunning demand to the degree 
that causes disaster. 27 

25 73 Cong. 2 sess., Operations of the Agricultural Adjustment Act, Hear- 
ings before the Senate Committee on Agriculture and Forestry, Jan. 18, 1934, 
pp. 5, 6. 

26 The same, pp. 16-17. 

27 AAA Press Release No. 1727-34, Jan. 31, 1934, pp. 14, 19. 



PROCEDURES AND POLICY 47 

Administrator Davis, although he had been an active 
proponent of the old McNary-Haugen measure, gave evi- 
dence long before the passage of the Agricultural Adjust- 
ment Act of having been fully converted to the view ex- 
pressed by the Secretary that direct and positive measures 
of production control were indispensable if the stated pur- 
poses of the Adjustment Act were to be accomplished. 28 
In his address before the annual convention of the National 
Co-operative Milk Producers' Federation at Chicago on 
October 9, 1933, Davis said: 

The first portion of this program [of relief for the dairy industry] 
— the formulation of marketing agreements covering the various 
fluid milk areas — is already well under way. But it has been evident 
for some time that a production control program for the entire 
dairy industry is needed. 29 

In an address to the Illinois Agricultural Association a 
month later, he gave clear indication that he looked upon 
the marketing agreement provision of the act as providing 
a device whereby control of supplies could be secured even 
in commodities not defined as basic in the act. "Since in 
these instances," he said, "the Administration has no au- 
thority to provide benefit payments for production con- 
trol, it has been functioning largely through agreements 
between the Secretary of Agriculture and associations of 
producers and handlers. Under such an agreement the 
pack of the California cling peach industry was limited 
to the estimated demand. . . . The marketing agreement, 
which provides authority for national proration and a 

28 "George Peek and Charles Brand held rather strongly to their original 
McNary-Haugen conceptions of export sales at less than the domestic market, 
whereas Chester Davis, who had become especially familiar with M. L. Wil- 
son's ideas, realized from the start the necessity of reducing acreage." Henry 
A. Wallace, New Frontiers, p. 169. 

29 AAA Press Release No. 819-34, p. 9. 



48 MARKETING AGREEMENTS 

stabilization plan, covers the product of 35,000 citrus 
growers." 30 

While placing major emphasis on the production control 
possibilities of the act, in its marketing agreement section 
as well as its benefit payment provisions, Davis did not 
fail to recognize that it had potentialities for raising farm 
prices through reform of marketing practices. In his review 
of the first year's results under the AAA, in which he 
stressed the beneficial results of adjustments in produc- 
tion, he added: "The agreements or licenses provide im- 
proved price schedules for farmers and eliminate unfair 
practices in processing and distribution of farm produce." 31 

Administrator Davis did not, on taking office, adopt any 
revolutionary tactics or make any public pronouncement 
of a change in policy. It became increasingly evident, how- 
ever, as the weeks went by that a difference in administra- 
tive technique, if not in policy, was coming to pass. Davis 
threw his influence toward putting through all such pro- 
posed marketing agreements as promised real benefit to 
the farmer. Instead of allowing agreement efforts to fail 
because of doctrinaire insistence that certain ideal require- 
ments be met, he accepted such agreements as he could get 
through aggressive but friendly negotiation, provided their 
terms seemed at all reasonable, biding his time for the 
accomplishing of results not obtainable at the moment. 

At the same time, the idea appeared to be definitely 
abandoned that marketing agreements could ever be a 
major agency for accomplishing agricultural relief, 32 

30 "Building on Experience," AAA Press Release No. 1687-34, P- J 3- 

31 "One Year of the AAA: The Record Reviewed," New Yor\ Times, June 
3, 1934, Sec. VIII, p. 1. (Reprinted as G-14, U. S. Department of Agricul- 
ture, p. 5.) 

32 "Some people, both within and without the AAA, thought we ought to 
forget the adjustment programs and concentrate on marketing agreements 



PROCEDURES AND POLICY 49 

however useful they might be found by particular pro- 
ducer groups. The most to be expected was that they 
would do three things: (1) serve a temporary purpose 
pending the perfection of production control devices; 
(2) bring some enhancement of prices and stabilization 
of operations in those minor lines, of production not eligible 
to benefit payment; 33 and (3) serve, to an extent as yet 
undetermined, to increase the economy and equitableness 
of distributive arrangements. The extent and nature of 
the results which have been secured along these lines will 
be discussed in our concluding chapters, after we have 
traced the course of actual developments in the several 
commodity fields. 

between producers and processors. We were willing to work as hard and as 
fast as we could on both, but most of us were unwilling to shove agreements 
through which we knew to be economically unsound and therefore unen- 
forceable, and which gave processors and distributors significant rights with- 
out equally significant obligations. . . . From the long-time point of view, 
there may be much to be hoped for from the agreement and licensing sec- 
tions of the Agricultural Adjustment Act. Unfortunately, thus far the expec- 
tations of benefits from agreements have been unreasonably great." Wallace, 
New Frontiers, pp. 190, 194. 

33 The rice agreements showed that it was possible even to effect produc- 
tion control through marketing agreements (see Chap. VI). Furthermore, the 
amendment of Apr. 7, 1934, by including producers as parties to a marketing 
agreement, was designed to enlarge the possibility of effecting control of pro- 
duction under this section of the act. 



CHAPTER III 

VOLUME AND CHARACTER OF AGREEMENTS 
AND LICENSES 

The preceding chapter has given a bird's-eye view of 
the process by which actual agreement and license arrange- 
ments emerged out of the potentialities of the Agricultural 
Adjustment Act. In Chapters IV to X we shall elaborate 
that preliminary sketch into a somewhat detailed account 
of developments in the principal commodity fields. 
Before undertaking this task, however, it seems desirable 
to present a brief summary of efforts up to August 1935. 
This will show the number of agreements and licenses that 
have been entered into, their regional and commodity 
distribution, and the principal features and combinations 
of devices which have characterized them. 

NUMBER AND DISPERSION 

The first marketing agreement became effective on 
August 1, 1933. It covered the handling of fluid milk in 
the Chicago market and was followed by 14 other fluid 
milk agreements between then and December 20. The 
Chicago agreement was cancelled as of December 20, 1933 
and that of New Orleans as of February 1, 1934, both at 
the signatories' request. The other 13 fluid milk agree- 
ments were terminated by order of the Secretary of Agri- 
culture on February 1, 1934. All these markets had licenses 
as well as agreements and the licenses were continued in 
force or replaced by new ones and many new licenses added 
as time went on (see pages 218-24). No new milk mar- 
keting agreements, however, have been put into effect. 

50 



VOLUME AND CHARACTER 51 

Besides fluid milk, there were two other dairy products, 
namely, evaporated milk and dry skim milk, for which 
agreements were used. They became effective on Septem- 
ber 9 and September 16, 1933 respectively. The latter is 
still in force; the former has been replaced by a new agree- 
ment of the same general character. In neither case were 
the members of the trade placed under license, but at the 
time that the new evaporated milk agreement became 
effective (June 1, 1935) a license was also put in operation. 

The second agreement to be perfected was for Cali- 
fornia canning peaches. It became effective on August 
17, 1933 and was followed between then and July 20, 1935 
by 27 other agreements covering fruits, vegetables, and 
nuts. Six of these were simply revised agreements 
which took the place of others previously operative for 
the same commodities. 

An agreement for California rice was one of the earliest 
to be perfected. It went into operation on September 26, 
1933 and was followed on October 16 by a rice marketing 
agreement for the Southern states. Both gave place to a 
processing tax and production control program in March 
1935. Along with rice, we may group an agreement cov- 
ering wheat — that for export of North Pacific surplus 
wheat — which became effective on October 11, 1933 and 
which is still in force in slightly amended form, though 
operations have been negligible since August 9, 1934. 

Tobacco also came early into the field of marketing 
agreement activity. Seven agreements were put into effect 
on four dates, ranging from September 25, 1933 to March 
26, 1934. Only one of them is still in force. An agree- 
ment similar in type to the tobacco agreements was that for 
peanuts, effective January 27, 1934 and superseded on 



52 MARKETING AGREEMENTS 

October i, 1934 by a processing tax and production control 
program. 

Finally, there have been several agreements of such mis- 
cellaneous character as to fit into none of the ordinary 
agricultural commodity groups. The most prominent are 
those formulated for the alcoholic importing and distilled 
spirits industries, both in December 1933. These, however, 
lie outside the agricultural field in which we are interested 
except as they contain provision for the paying of 
"parity" prices for such agricultural products as are used. 
Responsibility for regulation of processors or distributors 
of alcoholic beverages was soon shifted over to a new 
control agency, the Federal Alcohol Control Administra- 
tion. Also of little agricultural significance were two 
agreements for gum turpentine and gum rosin processors 
and for bee shippers respectively. Hearings were held 
late in 1933, and the agreement for turpentine and rosin 
became effective in February and the one for shippers of 
package bees and queens in May 1934. A full list of 
marketing agreements with their effective dates is pre- 
sented in the table on page 53. 

Excluding the four agreements not agriculturally sig- 
nificant, and six that were no more than amendments, we 
have 51 marketing agreements to consider. Seventeen 
apply to dairy products, 22 fall in the horticultural field, 
7 cover tobacco, and 5 make up a rather miscellaneous 
group, all of which, however, are generally referred to as 
"field crops" — wheat, rice, and peanuts. Only two agree- 
ments — dried and evaporated milk — are national in form. 
Most of them are local or narrowly regional in their scope 
of operation. The fluid milk marketing agreements cover 
metropolitan areas from Boston to San Francisco and from 
Minneapolis to New Orleans. The horticultural agree- 



Marketing Agreements Approved, 1933-35 



Title 



No. 



Effective 



Terminated 



Chicago milk shed 

Cling peaches canned in California 

Philadelphia milk shed 

Detroit milk shed 

Twin City milk area 

Calif, deciduous tree fruits, except apples 

Evaporated milk 

Dry skim milk 

Flue-cured tobacco 

California rice industry 

Baltimore milk area 

Handlers of fresh California Tokay grapes 

Packers of walnuts grown in Calif., Ore., Wash. 

Knoxville, Tenn., milk production area 

Disposal of North Pacific wheat surplus 

Handlers of Northwest deciduous tree fruits . . . 

Southern rice milling industry 

Evansville, Ind., milk shed 

Des Moines milk area 

New Orleans, La., milk production area 

Greater Boston milk market 

Alameda County, Calif., milk shed 

Los Angeles milk shed 

St. Louis milk production area 

Alcoholic importing industry 

Fire-cured and dark air-cured tobacco, Types 
21, 22, 23, 24, 35, and 36 

Dark air-cured tobacco, types 35, 36, and 37.. . 

Buyers of stemming grades of cigar-leaf to- 
bacco, types 41-44, 51-55 

Distilled spirits industry 

Connecticut Valley shade-grown tobacco 

Burley tobacco 

California ripe olive canning industry 

Citrus fruits grown in Florida 

Oranges and grapefruit grown in Calif, and Ariz 

San Diego milk shed 

Richmond, Va., milk area 

Oranges and grapefruit grown in Texas 

Peanut millers 

Gum turpentine and gum rosin processors 

Southern rice milling industry 

Fresh asparagus grown in California 

Fire-cured and dark air-cured tobacco, types 
21, 22, 23, 24, and 36 

Florida celery industry 

Shippers of package bees and queens 

Packers of California raisins 

California date shippers 

Canners of cling peaches grown in California.. . 

Shippers of Southeastern potatoes 

Shippers of fresh lettuce.'peas, and cauliflower 
grown in western Washington 

Shippers of Florida strawberries 

Handlers of Gravenstein apples 

Watermelons, Southeastern states 

Dried prunes produced in California 

Shippers and producers of fresh peaches, Colo. . 

Citrus fruits grown in Florida, 

Colorado fresh peas and cauliflower 

Paper-shell pecan industry 

California fresh asparagus 

California canning asparagus 

Evaporated milk industry 

California deciduous tree fruits except apples. . , 



Aug. 1, 1933 
Aug. 17, 1933 
Aug. 25, 1933 
Aug. 27, 1933 
Sept. 2, 1933 
Sept. 2, 1933 
Sept. 9, 1933 
Sept. 16, 1933 
Sept. 25, 1933 
Sept. 26, 1933 
Sept. 29, 1933 
Sept. 30, 1933 
Oct. 9, 1933 
Oct. 9, 1933 
Oct. 11, 1933 
Oct. 14, 1933 
Oct. 16, 1933 
Oct. 23, 1933 
Oct. 25, 1933 
Oct. 28, 1933 
Nov. 3, 1933 
Nov. 7, 1933 
Nov. 17, 1933 
Nov. 22, 1933 
Dec. 1, 1933 

Dec. 1, 1933 
Dec. 1, 1933 



Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Jan. 
Feb. 
Mar. 
Mar. 



I, 1933 

10, 1933 

II, 1933 

11, 1933 

13, 1933 

14, 1933 

14, 1933 

15, 1933 

20, 1933 

26, 1933 

27, 1934 

21, 1934 
6, 1934 
17, 1934 



Mar. 26, 1934 
Apr. 28, 1934 
May 6, 1934 
May 29, 1934 
June 8, 1934 
July 6, 1934 
July 13, 1934 

July 21, 1934 
Aug. 5, 1934 
Aug. 5, 1934 
Aug. 10, 1934 
Aug. 17, 1934 
Nov. 6, 1934 
Dec. 18, 1934 
Jan. 15, 1935 
Mar. 13, 1935 
Apr. 3, 1935 
Apr. 3, 1935 
June 1, 1935 
July 20, 1935 



Dec. 20, 1933 
July 31, 1934* 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Aug. 1, 1935a 
May 31, 1935* 

Mar. 31, 1934b 
Mar. 18, 1935 
Feb. 1, 1934 
Sept. 14, 1935 

Feb. 1, 1934 



Mar. 6, 1934» 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Feb. 1, 1934 
Sept. 24, 1934 

July 15, 1934b 
July 15, 1934 b 

June 30, 1934b 
Apr. 18, 1934 

Apr. 15, 1934b 
July 15, 1934 
Aug. 13, 1934" 

Feb. 1, 1934 
Feb. 1, 1934 

Oct. 1, 1934 
Aug. 5, 1934 
Apr. 1, 1935 
Apr. 3, 1935* 

July 15, 1934b 



Sept. 14, 1935 
June 30, 1934 



Aug. 9, 1935b 
July 15, 1935 



a Superseded by new agreement. 

h Except parts necessary to complete previous season's operations. 

53 



54 MARKETING AGREEMENTS 

ments are localized in the Southeastern states and the 
Pacific Coast region, except for two in Colorado and one 
in Texas. The wheat, rice, and peanut agreements affect 
much the same Pacific Coast and Southern and Southeast- 
ern regions, whereas the field of tobacco agreements ranges 
from Connecticut to Florida and westward to Kentucky 
and Wisconsin. In general, marketing agreements, except 
those for dairy products, have been conspicuously absent 
from the Northeastern region and from the Central and 
Mountain territory. 

Broadly speaking, the use of licenses has paralleled that 
of marketing agreements. Of 26 agreements covering 
"general crops" only one has been made effective without 
being accompanied or promptly followed by a license. 
This exception was the Colorado peach agreement. 
It was approved after the close of the 1934 crop-moving 
season. No license was required at that time, and when 
the agreement was put in effect this year the constitution- 
ality of the license provision was under too much doubt. Of 
the two rice marketing agreements, that for the Southern 
states was accompanied by a license, whereas the agree- 
ment for the California rice industry was in force for 
15 months without a license. On December 21, 1934, how- 
ever, the California rice millers were brought under 
license. The North Pacific wheat export agreement was 
not accompanied by a license, nor were six of the seven 
tobacco marketing agreements. In the dairy products 
field all the 15 fluid milk agreements made effective during 
1933 had parallel licenses but not the two agreements 
covering dried and evaporated milk. When the fluid milk 
marketing agreements were cancelled in December 1933 
and January 1934 the licensing system was continued in 
force and new licenses (without agreements) have been 



VOLUME AND CHARACTER 55 

added covering other milk markets. At the end of the 
year 1934 there were 50 such milk marketing licenses in 
force. There was also one other license unaccompanied 
by a marketing agreement, this covering the asparagus 
canning industry of California (see page 176). 

What has already been said concerning the geographic 
and commodity dispersion of marketing agreements 
naturally applies with almost equal force to the use of 
licenses. The only difference to be noted is that the increase 
in the number of fluid marketing licenses brought this pro- 
cedure into use in sections of the country where no other 
market adjustment efforts took place. 

While the use of industrial codes for the regulation of 
processors and distributors bears only indirectly on the 
problem of agricultural adjustment, a brief comment may 
be in order. The majority of marketing agreements and 
licenses include provisions covering trade practices and 
in one case (the Southern rice milling industry) there is 
a separate detailed code to accompany the agreement and 
license. There have also been six codes covering alcoholic 
beverages and 11 others relating more or less closely to the 
farmer's interest. Up to the close of 1934 there had been 
18 codes put in force under joint AAA-NRA supervision. 1 
Growers of grain other than rice have a concern, to a 
greater or less extent, in five of these codes, namely those 
regulating the grain exchanges (including terminal eleva- 
tors), wheat flour millers, country grain elevators, 2 feed 
manufacturers, and linseed oil manufacturers. The other 

1 On Jan. 7, 1935 a code for the malt industry was made effective. Of some 
40 codes approved in Division VI of NRA after re-transfer from AAA (see 
p. 31), only four have any considerable interest to the farmer, namely those 
for canners, for pecan shellers, for raw peanut millers, and for the wholesale 
tobacco trade. 

2 The principal codes concerned with wheat are discussed in J. S. Davis, 
Wheat and the AAA, pp. 205 ff. 



Licenses Issued, 1933-35 



Title 



No. 



Effective 



Terminated 



Chicago milk shed 

Cling peaches canned in California. . 

Philadelphia milk shed 

Detroit milk shed 

Twin City milk area 

Baltimore milk area 

Calif, deciduous tree fruits, ex. apples 

Packers of walnuts grown in Cali- 
fornia, Oregon, and Washington. . . 

Handlers of fresh California Tokay 
grapes 

Southern rice milling industry 

Evansville, Ind., milk shed 

Knoxville, Tenn., milk area 

Des Moines milk area 

Northwest fresh deciduous tree fruits 
New Orleans milk production area . . 

Greater Boston milk market 

Alameda County, Calif., milk shed. . 

Los Angeles milk shed 

St. Louis milk 

Alcoholic beverage import industry. 

California ripe olive canning industry 

Distilled spirits 

Citrus fruits grown in Florida 

Oranges and grapefruit, Calif .-Ariz. . 

San Diego milk shed 

Richmond milk 

Oranges and grapefruit grown in Tex. 
Connecticut shade-grown tobacco. . . 

Peanut millers 

Chicago milk area 

Des Moines milk area 

Twin City milk area 

Omaha-Council Bluffs milk 

Evansville, Ind., milk 

St. Louis, Mo., milk 

California canned asparagus 

Gum turpentine and rosin processors 

Greater Boston milk 

Greater Kansas City milk 

Lincoln, Neb., milk 

New Orleans milk 

Sioux City milk 

Wichita milk 

Fresh asparagus grown in California 

Indianapolis milk 

Providence milk 

Newport milk 

Fall River milk 

New Bedford milk 

Detroit milk 

Florida celery industry 

Richmond milk 



9 

11 

12 
10 
13 

27 
14 
15 
16 
17 
18 
19 

20 
21 

22 
23 
24 
25 
26 
28 
29 
30 

31 

32 
33 
34 
35 
36 
37 
38 
40 
41 

42 
43 
44 
39 
45 
46 
47 
48 
49 
50 
51 
52 



Aug. 1, 1933 
Aug. 17, 1933 
Aug. 25, 1933 
Aug. 27, 1933 
Sept. 2, 1933 
Sept. 29, 1933 
Oct. 9, 1933 

Oct. 11, 1933 

Oct. 14, 1933 
Oct. 17, 1933 



Oct. 23, 
Oct. 28, 
Oct. 28, 
Oct. 28, 
Oct. 31, 
Nov. 3, 
Nov. 14 
Nov. 20 
Nov. 25 
Dec. 10, 



1933 
1933 
1933 
1933 
1933 
1933 
, 1933 
, 1933 
, 1933 
1933 



Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Dec. 
Jan. 
Jan. 
Feb. 

Feb. 
Feb. 
Feb. 
Feb. 
Mar. 
Mar. 
Mar. 
Mar. 
Mar. 
Mar. 

Mar. 
Mar. 
Mar. 
Mar. 
Apr. 
Apr. 
Apr. 
Apr. 
Apr. 
Apr. 
May 
May 



13, 1933 

13, 1933 
18, 1933 
18, 1933 
18, 1933 
20, 1933 

26, 1933 
17, 1934 

27, 1934 
5, 1934 

14, 1934 
16, 1934 
23, 1934 
26, 1934 

1, 1934 
6, 1934 
13, 1934 

16, 1934 

17, 1934 
17, 1934 

17, 1934 
17, 1934 
17, 1934 
20, 1934 
1, 1934 
1, 1934 
1, 1934 
1, 1934 
1, 1934 
1, 1934 
1, 1934 
1, 1934 



Jan. 8, 1934* 
July 12, 1934" 
July 1, 1935 
Apr. 1, 1934- 
Feb. 16, 1934a 
Aug. 1, 1934" 



Sept. 14, 1935 



Feb. 26, 1934a 
June 24, 1934 
Feb. 14, 1934" 

Feb. 1, 1934" 
Mar. 16, 1934 
July 1, 1934" 
June 1, 1934 
Mar. 2, 1934 
Sept. 24, 1934 



Apr. 18, 1934 
Aug. 13, 1934 » 

Feb. 1, 1935 a 
May 1, 1934 a 



Sept. 29, 1934 
Mar. 2, 1935 



Aug. 5, 1935^ 



Mar. 14, 1935 



Apr. 3, 1935 
Feb. 28, 1935 
Apr. 4, 1935° 



56 



Licenses Issued, 1933-35 {Continued) 



Title 



No. 



Effective 



Terminated 



Lexington milk 

Shippers of package bees and queens 

Leavenworth milk 

Packers of California raisins 

Los Angeles milk 

Quad Cities milk 

Louisville milk 

California date shippers 

Oklahoma City milk 

Alameda County (Oakland) milk. . . . 

Fort Wayne milk 

Ann Arbor milk 

Battle Creek milk 

Bay City, Mich., milk 

Flint, Mich., milk 

Grand Rapids milk 

Kalamazoo milk 

Lansing milk 

Muskegon milk 

Port Huron milk 

Saginaw milk 

California cling peaches 

Wood turpentine & rosin processors 

Southeastern potatoes 

Gum turpentine and rosin agents, 

factors, & commission merchants. 

Gum turpentine & rosin distributors 

Fresh lettuce, peas, and cauliflower 

grown in western Washington 

Baltimore milk 

Shippers of Florida strawberries 

Handlers of Gravenstein apples 

Watermelon industry, S. E. states. . . 

Savannah milk 

Dried prunes produced in California 

Tulsa milk 

Denver milk 

Fort Worth milk 

San Francisco milk 

Southern Illinois milk 

Phoenix milk 

Topeka milk 

Atlanta milk 

Dubuque milk 

Citrus fruit grown in Florida 

California rice 

Colorado fresh peas and cauliflower. . 

San Diego, Calif, milk 

Tucson, Ariz, milk 

Evaporated milk 



79 
80 
81 
82 
83 
84 
87 
86 
85 



89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 



May 2, 1934 
May 6, 1934 
May 16, 1934 
May 31, 1934 
June 1, 1934 
June 1, 1934 

June 1, 1934 
June 11, 1934 
June 16, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 

July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 1, 1934 
July 12, 1934 
July 14, 1934 
July 14, 1934 

July 14, 1934 
July 14, 1934 



July 21, 1934 
Aug. 1, 1934 
Aug. 5, 1934 
Aug. 5, 1934 
Aug. 10, 1934 
Aug. 16, 1934 
Aug. 17, 1934 
Aug. 21, 1934 
Sept. 1, 1934 
Sept. 1, 1934 

Oct. 2, 1934 
Nov. 1, 1934 
Nov. 10, 1934 
Nov. 10, 1934 
Dec. 1, 1934 
Dec. 5, 1934 
Dec. 18, 1934 
Dec. 21, 1934 
Jan. 15, 1935 
Feb. 1, 1935 
Apr. 16, 1935 
June 1, 1935 



July 16, 1935 



Sept. 14, 1935 
July 1, 1935 



Mar. 15, 1935 
Sept. 1, 1935c 



July 26, 1935 



July 26, 1935 
July 26, 1935 
Mar. 2. 1935 
Julv 26, 1935 
July 4, 1935 



Aug. 5, 1935 
Aug. 5, 1935 



Feb. 26, 1935 

Sept. 1, 1935" 

July 1, 1935 
Sept. 1, 1935« 



Julv 15, 1935 
Sept. 14, 1935' 



a Superseded by new agreement. 

b Except parts necessary to complete previous season's operations. 

c Suspended. 

57 



58 



MARKETING AGREEMENTS 



six codes cover wholesale fresh fruit and vegetable dis- 
tributors, the New York City live poultry industry, "baby 
chick" hatcheries, tobacco warehouses, hog cholera virus 
and serum, and the beet-sugar industry. The accompany- 
ing table lists the agricultural codes in chronological order. 



Codes Approved, 1933-35 



Title 



No. Effective Date 



Imported date packing industry 

Southern rice milling industry 

Distilled spirits industry 

Alcoholic beverages importing industry 

Brewing industry 

Alcoholic beverage wholesale industry 

Distilled spirits rectifying industry 

Commercial and breeder hatchery industry. . . . 

Wine industry 

Anti-hog cholera serum and hog-cholera virus 
industry 

Grain exchanges and members thereof 

Linseed oil manufacturing industry 

Country grain elevator industry of the United 

States 

Live poultry industry of the metropolitan area 

in and about the city of New York 

Feed manufacturing industry 

Wheat flour milling industry 

Auction and loose-leaf tobacco warehouse in- 
dustry 

Wholesale fresh fruit and vegetable industry. . 
Malt industry 



10 

11 
13 

14 

12 



15 
16 

18 
17 
19 



Nov. 11, 1933 
Nov. 21, 1933 
Nov. 26, 1933 
Dec. 2, 1933 
Dec. 4, 1933. 
Dec. 9, 1933 
Dec. 9, 1933 
Dec. 27, 1933 
Dec. 27, 1933 

Mar. 6, 1934 

Mar. 20, 1934 
Apr. 20, 1934 

May 21, 1934 

Apr. 23, 1934 
(Amended 
Sept. 25, 1934) 
June 4, 1934 
June 13, 1934 

July 9, 1934 
July 16, 1934 
Jan. 7, 1935 



TYPES OF PROBLEMS COVERED BY AGREEMENTS 

We have already noted that the Agricultural Adjust- 
ment Act did not lay down a precise definition of a mar- 
keting agreement or prescribe definite boundaries to the 
matters which it might cover. In practice, agreements 
range all the way from particular market deals of defi- 



VOLUME AND CHARACTER 59 

nitely limited time duration up to elaborate covenants 
regulating and sometimes drastically modifying the pre- 
existing marketing machinery for a commodity until the 
present emergency shall be declared at an end, if not indeed 
permanently. There are too many features embodied in 
the various marketing agreements and too many com- 
binations of these several features to permit of a classifica- 
tion which would put each agreement in its appropriate 
pigeon-hole. It may serve to clarify the subject, however, 
if we conclude this resume of the scope and character of 
marketing agreements by a brief description of the major 
matters which they deal with, together with comments as 
to the relative frequency with which the several provisions 
appear or the emphasis placed upon them in practice. 

Improved distribution of supplies. A large number of 
agreements set up new machinery or strengthen previously 
existing machinery for securing more adequately informed 
and better co-ordinated movement of shipments to the 
several markets in proportion to their several needs as 
measured by ability or willingness to pay. (See Chapters 
VII, VIII, and IX.) 

Deferring of shipment or sale. Manipulation of supply 
in the interest of price enhancement is found in many 
marketing agreement provisions for holding back pro- 
ducts at the farm or orchard, the local warehouse, or the 
terminal market until what is regarded as oversupply can 
be relieved and the withheld goods absorbed at a better 
price or without depressing the previous level. In the case 
of non-perishables or semi-perishables, this will not reduce 
the total supply eventually offered in the market. In the 
case of perishables it amounts to passive destruction of the 
product to a greater or less extent. (See Chapters VII 
and XIV.) 



60 MARKETING AGREEMENTS 

Prohibition of marketings. The deferring of marketings 
merges into actual prohibition. A few agreements, in- 
stead of ordering a suspension of shipments for a specified 
period (during which part of the supply is lost), order 
the termination of marketing before the crop is all har- 
vested or prohibit marketing prior to a date somewhat 
after the product has become ready for shipment. Others 
prohibit or limit the sale of certain grades or classes of the 
product, thus restricting the total supply made available to 
consumers. (See pages 120, 131, 175, 297, 322 ff.) 

Diversion to by-product uses or lower priced markets. 
Withholding practices are in some agreements supple- 
mented by the development of by-product uses, the gift of 
product to charitable agencies, or its diversion to consumer 
groups, domestic or foreign, who are not in competitive 
contact with the markets in which the product is ordi- 
narily sold. The latter course may combine the advan- 
tages of yielding a salvage price on goods which would 
otherwise be wasted with the building up of consumer 
preference or good-will which may some day benefit the 
general market for the product. In the case of non- 
perishables, this may involve direct or indirect subsidy to 
draw off accumulated supplies from the current market 
into either export or domestic outlets. (See pages 93, 104, 
117,173,186,201,337.) 

Agreement on prices and volume of takings. A feature 
of a few marketing agreements which has been of a 
temporary character has been the securing of a direct 
commitment on the part of buyers that they will maintain 
a certain price level and a stipulated volume of purchases. 
This shades over into the pre-existing types of collective 
bargaining used by many co-operatives. Marketing agree- 



VOLUME AND CHARACTER 61 

ments under the AAA, however, by bringing all buyers 
in either voluntarily or by license, give each buyer assurance 
(in proportion as they are enforced) that his competitors 
will not be able to buy on more favorable terms than he. 
(See Chapter V and page 179.) 

Regulation of trade practices. Most marketing agree- 
ments contain provisions regulating trade practices so as 
to prevent any dealer or processor from evading the spirit 
of an agreement through "irregular" competitive practices 
even though he was keeping the letter of its price or other 
terms. (See pages 91, 109, 307-08, and index.) 

Control of charges or margins. Closely allied to the 
preceding type of regulation are the provisions found in 
most marketing agreements designed to insure that the 
benefits of price enhancement shall be passed on to pro- 
ducers and not absorbed in expanded fees, commissions, 
storage charges, or the like. (See pages 91, 97, 104, 109, 
and 304.) 

Substituting a new price-making system. In a number of 
cases careful scrutiny of the provisions of marketing 
agreements will reveal the fact that they virtually displace 
a traditional and sometimes rather primitive system of 
dealing and price making by a more elaborate system 
which may properly be described as economically sophisti- 
cated. This phrase may sound unduly cryptic, but the idea 
hardly admits of brief and simple expression. It will be 
developed further with reference to milk in Chapter X 
and in general in Chapter XIV. 

Minimum prices to growers. These minima are dis- 
tinguishable from the volume and price bargains listed 
above in that no commitment was made as to the amount 
of goods to be taken. Likewise these minimum prices 



62 MARKETING AGREEMENTS 

were subject to change from time to time at the discretion 
of the respective control committees. (See pages 96, 103, 
108, 143, 167, 174, 182 ft., 342.) 

Open-price provisions. Three marketing agreements 
supplement their provisions for control of shipments not 
by the stipulation of minimum prices but by a provision 
authorizing the administrative authority to require all 
shippers to post their price schedules and to file this in- 
formation with the administrative authority in order that 
it may be transmitted to all other licensees. (See pages 
140, 344.) 

Trade and consumer price controls. These provisions, 
though found in only a few agreements, took on rather 
complicated forms and are aimed at rather diverse objec- 
tives. In general they are designed to protect the producer 
against pressures growing out of competitive cutting of 
consumer prices by a distributor as a means of enlarging 
his share of the business, or to protect distributors from 
the competition of those of their members who would 
be inclined to narrow their margin either permanently 
or as a temporary means of attracting business. (See 
Chapter X and pages 97, 103, 108, 168, 307.) 

Control of current or future production. In the main, 
marketing agreements have sought merely to handle cur- 
rent supplies, uncontrolled as to farmers' scale of produc- 
tion, in such a way as to net a larger return to growers. 
A few marketing agreements, however, have included 
provisions for assuring or making more probable some 
check in the rate at which supplies will be forthcoming. 
While other sections of the law embody other and proba- 
bly more effective devices for production control than 
could ever be developed through marketing agreements, 



VOLUME AND CHARACTER 63 

the latter have shown themselves not without potentiali- 
ties along this line. (See Chapters VI and X.) 

No attempt is made here to develop any critical analysis 
of the manner in which any of these provisions actually 
work or the results which have followed from including 
them in agreements or licenses. This task is reserved for 
our closing chapters. As a foundation for that under- 
taking, we shall first proceed in the next nine chapters to 
present a descriptive and historical account of the several 
commodity programs under Sections 8(2) and 8(3) 
of the act. 



CHAPTER IV 
THE WHEAT EXPORT AGREEMENT 

We begin our discussion of specific lines of action under- 
taken under the marketing agreement provisions of the 
Agricultural Adjustment Act with an examination of the 
North Pacific wheat export agreement. This phase of 
marketing agreement activity is put first not because it 
came first in time or is to be considered as the most typical 
or because the operation has been the greatest in magni- 
tude or has attracted chief public interest. Nor does it prom- 
ise to bulk largest among future undertakings in the mar- 
keting agreement field. Quite the contrary. The Secretary of 
Agriculture let it be known from the start that he regarded 
this as an exceptional expedient dictated by a particular 
situation of distress. 1 Though regarding it as fortunate 
that this procedure was made possible under the broad 
powers of the act, he did not intend it to be regarded as 
an accepted part of AAA policy. 

The reason which impels us to begin our discussion of 
specific agreements with an account of the wheat export 
operation is that it exemplifies so clearly the continuity of 
the agricultural adjustment undertaking with other plans 
of farm relief which had been evolving for more than a 
decade. In particular it illustrates the point made in our 
introductory chapter to the effect that the Agricultural 

1 This view was emphasized in official announcements that appeared in con- 
nection with the initiation of the program and was formally incorporated in 
Section 15 of the agreement, which reads: "The plans and arrangements herein 
specified shall not be considered as the adoption of any definite form of policy 
by the Secretary, but this agreement and the terms of the exhibits hereto 
attached shall be considered only as being necessary for the solution of the 
present critical condition in the aforesaid Pacific Northwest area." 

64 



WHEAT EXPORT AGREEMENT 65 

Adjustment Act traced its lines of descent not merely to 
the domestic allotment plan but also to the several 
McNary-Haugen bills. The essence of these measures had 
been the promotion of export sale of such portion of the 
crop as was necessary to maintain a desired domestic price 
level. The facilitation, though not the actual subsidizing, of 
exports had also been to a degree included within the orbit 
of Federal Farm Board efforts to assist the wheat industry. 
Not only had the Grain Stabilization Corporation held a 
large part of carry-over stock in order to support domestic 
prices but it had disposed of some of its holdings abroad 
at a loss which eventually fell on the revolving fund. Like- 
wise the Reconstruction Finance Corporation had been 
specifically authorized to assist the foreign movement of 
agricultural commodities by making loans "for the pur- 
pose of financing sales of such surpluses in the markets 
of foreign countries in which such sales cannot be financed 
in the normal course of commerce." 2 

When it came to the drafting of the Agricultural Ad- 
justment Act, Mr. Peek's confidence in the promotion of 
sales abroad rather than in the curtailment of domestic 
supplies was, as we have already noted, an influential 
factor in causing the marketing agreement provision to be 
added to the Agricultural Adjustment bill. Experience 

2 Emergency Relief and Construction Act of 1932 (47 Stat. L. 709). 

While no agricultural export financing was effected under this section prior 
to the passage of the Agricultural Adjustment Act, it was thereafter utilized 
for the extension of loans covering both cotton and wheat. On June 4, 1933 
announcement was made of the establishment "of a credit of 40 million dollars 
to the Chinese government for cotton purchases and 10 million dollars for 
wheat and flour purchases in this country. The latter will be discussed later 
in this chapter. On July 3, the Reconstruction Finance Corporation announced 
an agreement to finance sales of from 60,000 to 80,000 bales of cotton by 
American exporters to Russia. RFC Press Releases Nos. P-72g and P-802. 

The Corporation's quarterly report of Sept. 30, 1934 shows loan authoriza- 
tions of 52.9 million dollars, disbursements of 19.0 million, and 30.1 million 
withdrawn or cancelled. 



66 MARKETING AGREEMENTS 

thus far under the act has not shown the Adjustment Ad- 
ministration placing any considerable reliance on subsi- 
dized export as an agency for the improvement of agri- 
cultural prices. It is perhaps all the more important there- 
fore that before considering the types of activity that have 
been more prominent in the AAA program we examine 
the outstanding case of export effort to see what success 
attended it. 

BACKGROUND AND FORMULATION OF THE AGREEMENT 

The wheat industry had throughout the agitation for 
farm relief been universally regarded as the chief or at 
least one of the most outstanding candidates for govern- 
ment aid. By the time actual operations under the Agri- 
cultural Adjustment Act got under way in the summer 
of 1933, however, a curious turn of circumstances relieved 
it of its exigent claims to aid, and thrust cotton and hogs 
forward as the two commodities most in need of sweeping 
emergency treatment. Drought conditions over a con- 
siderable portion of the wheat belt so reduced crop pros- 
pects that surplus production could hardly be said to 
threaten the wheat industry as a whole. 3 The general 
adjustment program was therefore so cast as to defer 
acreage reduction measures to the 1934 and 1935 crops. 

For the Pacific Northwest wheat area, however, the 
situation by no means paralleled that of the country as a 
whole. Wheat growers of these states — Washington, 
Oregon, and northern Idaho — devote major attention to 
the production of certain types of white wheats which 
have a somewhat specialized market at home and abroad. 

3 For a fuller discussion of this and other aspects of the wheat export agree- 
ment, see J. S. Davis, Wheat and the AAA, Chap. IX, and "Pacific Northwest 
Wheat Problems and the Export Subsidy," Wheat Studies of the Food Re- 
search Institute, August 1934, Vol. 10, No. 10. 



WHEAT EXPORT AGREEMENT 67 

The export market had in recent years not furnished a 
satisfactory outlet, partly as a result of heavy Australian 
production. Prices fell to unprecedentedly low levels in 
1932-33 and the carry-over in Northwest markets on July 1, 
1933 was estimated at 40 per cent above the previous record 
in 1931. 

In his rather qualified acceptance of the program of 
production curtailment, Administrator Peek had empha- 
sized the view that the removal of supplies should take 
place only in those parts of the producing territory where 
there was specific excess, rather than being made to apply 
to all areas regardless of whether local supplies were ex- 
cessive, normal, or deficient. 4 Hence he was not only 
agreeable to the proposal that some sort of export aid be 
provided to the Pacific Northwest, but also willing to 
experiment with the marketing agreement as a means to 
that end. 5 This might prove an effective stop-gap arrange- 
ment pending the development of a production control 
program for the whole wheat industry, or it might demon- 
strate that marketing agreements would be all that was 
needed to bring "parity" prices. 

Both wheat growers and handlers in the Pacific North- 
west were practically unanimous in urging some measure 
of government assistance to export trade. Rather than 
accept extremely low export prices in 1932-33, growers 

4 See pp. 14-15. 

5 Such a procedure involved not only the powers conferred in Section 8 (2) 
of the act but also Section 12 (b), which reads: "In addition to the fore- 
going [administrative expenses and rental and benefit payments] the proceeds 
from all taxes imposed under this title are hereby appropriated, to be available 
to the Secretary of Agriculture for expansion of markets and removal of surplus 
agricultural products." 

A processing tax of 30 cents per bushel on wheat was imposed beginning 
July 9, 1933. As early as July 24, the Secretary of Agriculture announced 
that 2 cents of this amount would be set aside for the purpose of financing 
wheat exports if occasion should demand it. 



68 MARKETING AGREEMENTS 

there had held wheat firmly. The Pacific Northwest had 
not been participating as fully as had other sections in the 
sharp rise in wheat prices which took place from April to 
mid-July as a result of crop damage in the winter-wheat 
and part of the spring-wheat belt and as a result of the 
stimulating effects of inflationary and speculative forces 
growing out of other developments of the New Deal. 
Such rise as they had secured put their prices still further 
out of line with those in Oriental markets, and so drew 
more wheat from Australia and even Argentina. Since 
the exportable surplus failed to flow out, supplies accumu- 
lated at terminals and shipping points until storage facili- 
ties were so seriously congested with carry-over stocks as 
to interfere with the proper handling of the new crop. 
Hence grain exporters and elevator interests joined the 
producers as urgent advocates of some step which would 
facilitate export movement of some 35 million bushels of 
wheat. Bankers were also interested lest the failure to 
open export markets would cause prices to decline to a 
point where outstanding credit could not be liquidated. 
The millers were ready to support the move if it could be 
handled in such a way as to improve or at least not harm 
their flour trade at home and abroad. 

Wheat growers and millers in other sections of the 
country tended to support rather than oppose special 
measures for the relief of the Pacific Northwest since the 
relatively low level of prices and the restriction of exports 
from that area were throwing soft white wheat into the 
markets of the Southwest and Southeast, thus weakening 
prices there. 

Wheat growers of the Northwest had always been active 
supporters of the McNary-Haugen plan, and their co- 
operative association, the North Pacific Grain Growers, 



WHEAT EXPORT AGREEMENT 69 

Inc., along with the North Pacific Grain Dealers Associa- 
tion, now took an aggressive part in pushing the proposal 
for an export agreement embodying similar principles. 
Informal hearings were held in Portland on August 21 to 
discuss proposals for a marketing agreement under which 
regional wheat prices might be raised by some form of 
absorption of loss on exports. The North Pacific Grain 
Growers, Inc. proposed an export pool under their own 
administration. The grain exporters' association suggested 
either a flat bounty of 30 cents per bushel or other suitable 
amount or as an alternative a flexible bounty sufficient in 
amount to keep the North Pacific market in a fixed re- 
lationship to Chicago wheat prices. The millers urged 
certain considerations designed to protect their interests 
in the domestic export flour business. 

At the close of this conference a drafting committee, 
made up of representatives of the growers, the exporters, 
the millers, and the bankers, was set up. The committee's 
draft proposal was sent to Washington, where it was 
revised and returned to the Northwest for a formal hear- 
ing at Portland on September 15-17. Again the millers 
were much in evidence with demands for special protec- 
tion which representatives of the other interests regarded 
as excessive. After lengthy discussion, however, the 
major differences were sufficiently ironed out so that the 
AAA plan was accepted without serious modification. 
Producers, with the support of the AAA, secured repre- 
sentation equal to that of the exporters and millers. The 
final adjustment of details of this draft agreement con- 
sumed nearly a month so that the marketing agreement 
for disposal of North Pacific wheat surplus did not 
become effective until October 11, 1933. 



7 o MARKETING AGREEMENTS 

TERMS OF THE AGREEMENT 

The AAA did not accept the proposal of either the 
North Pacific Grain Growers, Inc. or the North Pacific 
Grain Export Association, each of whom had sought 
to become the agency through which the export operation 
should be carried out. Instead, the agreement set up a 
new agency known as the North Pacific Emergency 
Export Association. Operations were to be in charge of 
an executive committee of nine members, two representing 
the North Pacific Grain Growers, Inc., two the Farmers' 
National Grain Corporation (the national co-operative 
marketing agency), two the North Pacific Grain Export 
Association, two the North Pacific Millers Association, 
and one representative of the Secretary of Agriculture. 
Each of the four producer, processor, and trade interests 
was given one vote, and the Secretary's representative had 
a fifth vote in actions of this executive committee. The 
committee appointed a managing agent subject to the 
approval of the Secretary of Agriculture. 6 His actions, 
like those of the executive committee and the association, 
were to be subject to the approval of the Secretary. Sec- 
tion 4 of the agreement provided that: 

The Secretary may, from time to time, give written instructions 
to the executive committee of the association, or its duly appointed 
managing agent, directing such association to contract for the 
purchase of wheat, produced in the aforesaid Pacific Northwest 
area, for the purpose hereinafter provided. Such written instruc- 
tions may, in the discretion of the Secretary include any or all of 
the following: 
(a) The quantity of wheat to be so purchased, which purchases 

6 The managing director chosen was a man of long experience in the grain 
trade of the Orient; a prominent exporter was made vice-president of the 
association; and the president of the North Pacific Grain Growers, Inc., was 
also made president of the export association. 



WHEAT EXPORT AGREEMENT 71 

shall be made on the basis set forth in Exhibit A attached hereto 
and by this reference made a part hereof; 

(b) The price to be paid for the same and the terms of said 
purchase; and 

(c) The persons from whom such purchases are to be made, 
whether from producers, associations of producers, local or terminal 
warehouses, or others. 

As to the plan of operation the export association was 
to "serve as a clearing house for arranging details of pur- 
chasing, shipping, handling, and selling the wheat and/or 
flour purchased for export or otherwise." In practice, 
these powers were exercised by the resident representa- 
tive of the Secretary of Agriculture, acting in consultation 
with the Chief of the wheat processing and marketing 
section in Washington, who was in touch with AAA 
officials and the Secretary himself. 

Members of the association 7 continued the physical 
handling of grain in substantially the same manner as they 
had prior to the formation of the export association, but 
legal title to grain for export passed to the association 
between the time of purchase from the producer and 
sale to the foreign importer. The association was free to 
acquire grain according to its judgment of the possibilities 
of moving it to foreign markets, subject, however, to the 
limitation that it should at no time have "outstanding 
net purchases in excess of one million bushels of wheat 
against which excess there are no outstanding sales or 
contracts for sales." 

For the disposal of wheat which it had acquired the 

7 Membership was open to producers, producers' associations, exporters, or 
exporters' associations having the necessary handling or processing facilities. 
All such persons, firms, or corporations who desired to operate under the plan 
were required to sign the agreement and be approved by the Secretary of 
Agriculture. 



72 MARKETING AGREEMENTS 

association each day received written bids from its mem- 
bers for wheat which they desired to sell as grain or flour 
in export trade. The Secretary's resident representative 
then advised the managing agent what bids to accept, 8 
and stated the prices at which the association would sell to 
the exporter to consummate the sale. The difference 
between these two prices, with certain standard adjust- 
ments, was the amount for which the exporter was 
entitled to claim reimbursement from the Secretary of 
Agriculture. Similar arrangements were made in the case 
of flour sold for export. Sales to the Chinese government, 
under a 10 million dollar loan made by the Reconstruc- 
tion Finance Corporation in June 1933, called for some 
special arrangements. 9 Operating expenses of the associa- 
tion were defrayed by assessment on members in propor- 
tion to transactions cleared through it. 

OPERATION AND RESULTS 

Purchases under the wheat export agreement were 
begun on October 19, 1933, and the first sales effected on 
October 31. Thereafter operations proceeded actively 
until checked by shipping difficulties due to the long- 
shoremen's strike which began on May 9 and continued 
through July 1934. On May 12 total wheat and flour sales 
by the export association amounted to 25.7 million 
bushels. Subsequent sales were retarded not only by the 
shipping strike but also by two other influences. First, 

8 For the simplification of practice, there was named each day in advance 
a schedule of prices at which deals would be accepted up to a specified amount 
during the ensuing 24 hours. 

9 Purchases to fill sales to the Chinese government were allocated among 
the trade at first on a tentative basis and after the first three months on the 
basis of other export sales up to that time. Other purchases were distributed 
among the trade on a basis which somewhat favored the growers' organization. 



WHEAT EXPORT AGREEMENT 73 

China had exhausted the portion of the loan (60 per cent) 
that was earmarked for wheat purchases, her mills were 
well supplied with wheat, and her millers strongly 
opposed to government imports of flour. In July and 
August, however, two important sales of flour were made 
under this loan. Second, the crop shortage east of the 
Rockies reached such proportions that it looked as if the 
Pacific Northwest surplus would be needed in this coun- 
try. From August 9, accordingly, operations under the 
agreement were practically suspended in the face of con- 
tinued pressure from the Pacific Northwest for renewal 
of subsidized exports. 

Total sales and shipments under the agreement 
amounted to 28.4 million bushels, considerably less than the 
objective of 35 million bushels originally proposed. Since 
yields in the Pacific Northwest were not reduced by 
drought as were those of other sections, the carry-over in 
that region was only moderately reduced. The amount 
of the subsidy averaged 23 cents and the total subsidy 
cost about 6.5 million dollars. This fell well within the 
limits of the funds available for the purpose from the 
2-cent reserve from the processing tax on wheat. 

The carrying out of the wheat export agreement did 
not encounter any serious administrative difficulties and 
the results were generally regarded as distinctly advan- 
tageous to the Pacific Northwest. However, exporters felt 
that the system was much too cumbersome. They also 
claimed that several hundred thousand dollars more should 
have been paid them under the agreement. Some of the 
millers complained that the amount of flour moved under 
the agreement was unduly small as compared with the pro- 
portion of exports moving as grain. Even after the large 
sales to China in the summer of 1934 these amounted to 



74 MARKETING AGREEMENTS 

only 23 per cent of the total whereas the millers had asked 
for 50. Producers, on the other hand, were reasonably 
satisfied with the improvement in prices, although some- 
what disappointed that it did not keep Northwest terminal 
markets within 9 cents of the Chicago quotation as they 
had hoped. Even so, they were inclined to give the agree- 
ment credit for an advance in the farm price of as much 
as 20 cents per bushel. Prominent members of the trade 
estimated the grower's net advantage at from 12 to 15 cents 
or more during the period of active operations. For the 
1933-34 season as a whole }. S. Davis has estimated the net 
gain by growers to have been from 5 to 6 cents per bushel 
sold. Some analysts consider this too low, but even on this 
basis the farmers' benefit from the agreement distinct from 
other price influences would be somewhere in the neigh- 
borhood of 3 million dollars. 

There were only one or two protests from foreign coun- 
tries on the ground that the subsidy operations constituted 
dumping. The export association, however, made a point 
of making sales only on the existing world price basis, and 
refrained from cutting sales prices in an effort to export 
the maximum quantity of wheat which domestic interests 
desired to divert to foreign markets. As we have noted, 
it disposed of only about three-fourths of that amount 
and terminated operations with unexpended money avail- 
able to the subsidy fund. In view of this attitude, assur- 
ances that the operations were of a purely emergency 
character, and the fact that total United States exports 
were kept well below the quota allotted under the inter- 
national wheat agreement, complaints from abroad never 
reached an acute stage. Domestic interests were practi- 
cally unanimous in favor of continuance or repetition of 
the effort if a similar emergency should present itself. 



WHEAT EXPORT AGREEMENT 75 

The marketing agreement has net been terminated. It 
continues technically in force, and during the winter of 
1934-35 plans reached an advanced stage for adapting the 
association machinery to diverting wheat from the Pacific 
Northwest to feed use in the interior Northwest and to the 
New England states. This was to be accomplished with 
the aid of reduced freight rates and a subsidy paid out of 
processing tax revenues. Before this plan had been com- 
pleted, 1935 crop prospects became so unfavorable as a 
result of drought that acreage restrictions for that year's 
crop were relaxed and the proposed movement of North- 
west wheat abandoned. 

Under the amendments to the Agricultural Adjustment 
Act approved August 24, 1935, it is provided (Section 32) 
that 30 per cent of gross customs receipts shall go into a 
fund which may be used to "encourage the exportation of 
agricultural commodities and products thereof by the pay- 
ment of benefits in connection with the exportation there- 
of or of indemnities for losses incurred in connection with 
such exportation." If in future such funds are used to 
facilitate the exportation of Pacific Northwest wheat, it 
would seem likely that the marketing agreement would 
again be brought into active use. It is possible, also, that 
similar agreements for other regions or for other com- 
modities might be drawn up. It is obvious that the in- 
clusion of this provision in the amendments represents a 
victory for proponents of the policy of stimulating exports 
much after the manner of the old export debenture bill. 
Since the Secretary of Agriculture and the Adjustment 
Administration officials seem still to lean much more 
strongly to devices of domestic allotment and production 
control types, it is by no means clear that this power will 
be utilized to inaugurate further export operations. 



CHAPTER V 
THE TOBACCO AND PEANUT AGREEMENTS 

For a second type of use to which the marketing agree- 
ment provision of the Adjustment Act has been put, we 
turn to tobacco * and peanuts. Agreements in this group 
are with one exception analogous to the wheat export 
agreement in that they utilized certain powers of the 
act to secure emergency relief in the particular situations 
that obtained in the summer of 1933. Another link be- 
tween the matters discussed here and those in the preced- 
ing chapter is that they both represent types of action 
thoroughly believed in by the early administrators of the 
act. We have noted the importance that Mr. Peek 
attached to agreements for the stimulation of export move- 
ment of redundant supplies. Likewise, both he and Mr. 
Brand indicated a belief in the possibility of direct price- 
raising agreements. By approaching processors and dis- 
tributors in an aggressive but friendly spirit they sought in 
several instances to negotiate better prices for agricultural 
products 2 long before such a result could be brought 
about through the operation of a program of production 
control. 

In part such belief was based on the theory that there 
is always a greater or less margin between the maximum 
and minimum prices which will result from the free play 
of supply and demand forces. It was thought in the 
summer of 1933 that prices were somewhere near the 

1 For discussion of the tobacco program as a whole, see Harold B. Rowe, 
Tobacco under the AAA. 

? In the case of canning crops, prices were marked up without resort even 
to a formal marketing agreement. See p. 179. 

76 



TOBACCO AND PEANUT AGREEMENTS 77 

bottom of this range but that vigorous action, backed by 
the prestige of government, could shift them up to or 
near the upper limit of the range. Second, there was the 
confidence that general economic recovery was to be 
brought about by the agencies of the New Deal and that 
agricultural prices, instead of rising slowly as laggard 
participants in the general upswing, could be made full 
sharers and perhaps pacemakers in the advance. Third, 
monetary inflation was generally regarded as one of the 
powerful weapons in the arsenal of the New Deal and it 
was expected to operate most directly and promptly upon 
export commodities. Full advantage of this force could 
be secured for the American producer only by the most 
aggressive bargaining on behalf of the whole body of pro- 
ducers of those commodities. 

During the time that the Adjustment Act was in process 
of formulation, it became reasonably clear that tobacco 
would be one of the small group of commodities enum- 
erated as "basic." Hence a committee of workers in the 
Department of Agriculture began studying the possibility 
of applying the new adjustment devices to the tobacco 
industry. This committee presented its report on May 13, 
the day following the signing of the Adjustment Act. 
Press releases on May 17 and 18 set forth the distressed 
situation of tobacco producers in the face of foreign trade 
barriers, 3 decline in domestic consumption, abnormally 
large carry-overs, and prospects of heavy production in 
1933. 4 The second of these statements stressed the neces- 
sity of production adjustment "for practically all types if 
the present accumulated stocks are to be worked down 
and a normal balance achieved," and added: 

3 USD A Press Release No. 1172-33. 

4 USD A Press Release No. 1176-33. 



78 MARKETING AGREEMENTS 

Under the new Adjustment Act, the Secretary of Agriculture is 
empowered, among other methods of procedure, to arrange for 
voluntary reduction of tobacco acreage or production, through 
rentals or direct benefit payments. The Secretary may also enter 
into marketing agreements with processors and others to reduce 
wasteful and price-depressing practices and thereby bring about 
better prices to the producers. 

The act gives the Secretary wide powers to insure the effective- 
ness of any agreements or any procedure that may be devised to 
bring a fair exchange price to the producers, manufacturers, and 
distributors themselves. 5 

On May 31, plans were laid for a series of conferences 
for the purpose of securing from representatives of pro- 
ducers and processors, as well as agricultural colleges, 
suggestions as to how the Adjustment Act could be ap- 
plied in the several tobacco situations. Attention was 
directed first to cigar-leaf types since their situation was 
regarded as most critical. The evolution of plans for 
cigarette types, however, once undertaken, moved more 
swiftly to the stage where a marketing agreement was put 
in effect. Since the agreement for flue-cured tobacco was 
signed first, was of a much more simple type than that for 
cigar-wrapper tobacco, and was typical of six of the seven 
agreements used for this commodity, we shall take it up 
first in our discussion. A few words of history are neces- 
sary if we are to see clearly the relation of the marketing 
agreement to other aspects of the tobacco program. 

THE FLUE-CURED TOBACCO AGREEMENT 

It was about the middle of July before the AAA turned 
its attention to the cigarette types of tobacco. An informal 
conference with reference to the general plans for flue- 

5 The same, p. 3. 



TOBACCO AND PEANUT AGREEMENTS 79 

cured and burley was held on July 27, at which the repre- 
sentatives of the important manufacturing companies 
were asked to propose some plan by which current prices 
could be raised. While the manufacturers' representatives 
expressed a courteous desire to co-operate in such a move, 
the conference was barren of any helpful suggestions for 
immediate action. 6 As to any price raising on their part, 
they manifested concern lest it should lead to over-produc- 
tion in subsequent years. The Adjustment Administra- 
tion on its part did not consider the situation so pressing 
as to require an effort to reduce 1933 production through 
a plow-up campaign, although it did consider "the possi- 
bility of keeping the surplus off the market through trade 
agreements or of paying growers to divert it to non-com- 
mercial uses." 7 

A second conference of flue-cured tobacco interests was 
held on August 30 but was without results so far as any 
positive proposals from processors and trade groups were 
concerned. Meanwhile, the prices prevailing in the 

6 On the morning of the conference the manufacturers filed a code of fair 
competition covering wage and labor questions and provisions relating to prices 
of the product. As none of these matters were regarded as offering advantages 
to producers, the AAA did not even call a hearing on the proposed code. 

7 J. B. Hutson, "The Application of the Agricultural Adjustment Act to 
Tobacco," American Co-operation, 1933, p. 483 (address delivered at the 
American Institute of Co-operation, July 28, 1933). At this same meeting 
Chester Davis said: "The Agricultural Adjustment Act aims at the control of 
prices through the control of production. It has nothing to do with market 
prices directly." Marketing agreements being undertaken in the dairy and 
horticultural fields were referred to as important primarily as agencies for the 
regulation of production (see p. 47). Apparently the idea that marketing 
agreements might be used purely for the purpose of direct price bargaining 
without any modification of the supply situation occupied a very subordinate 
place in his thinking at this time. It was much more definitely a part of the 
philosophy of Administrators Peek and Brand (see pp. 38, 169, 179). As 
occasion arose, however, Davis showed a willingness to accept experiments 
along this line for what they might prove to be worth. 



80 MARKETING AGREEMENTS 

auction markets had fallen disastrously since the markets 
opened. 8 Expressions of dissatisfaction had spread rapidly 
from Georgia into the Carolinas. Protest meetings were 
held, violence was threatened, and the situation became so 
menacing that the Governors of North Carolina and South 
Carolina ordered the closing of the markets in those states 
effective September 2. 

The view was being freely expressed in the producing 
territory that such conditions should not be tolerated now 
that the Agricultural Adjustment Act had been passed for 
the express purpose of relieving the distress of agriculture. 
Even though it was known that the AAA was at work on 
the formulation of plans for production adjustment for 
subsequent years, 9 producers demanded that steps be 
promptly taken for emergency relief for the crop of 1933. 
Prices in the auction markets declined during the latter 
part of August until they were around the 1932 level, and 
observers were predicting that the average for the season 
might be as low as 10 cents a pound and certainly not 
over 12 cents. 10 

In this situation the Secretary on September 1 announced 
a processing tax on flue-cured tobacco to become effective 
on October 1. On September 15 the flue-cured tobacco 
interests were called into another conference preliminary 
to a formal hearing on September 21 on a draft proposal 
for a marketing agreement designed to bring prices nearly 

8 On August 1 in Georgia and August 10 in South Carolina. The latter 
date was advanced at the direction of the AAA from the 15th as originally set 
by the Tobacco Association of the United States. The reason for the change 
was that tobacco was beginning to suffer deterioration through lack of proper 
storage facilities on the farm. 

9 On August 15 a growers' committee from Virginia, North and South 
Carolina, and Georgia had recommended to the AAA that it initiate a pro- 
duction control program for flue-cured tobacco. AAA Press Release No. 347-34. 

10 Agricultural Adjustment, AAA, p. 79. 



TOBACCO AND PEANUT AGREEMENTS 81 

to the parity level at once. It was argued that the 
assurance of production control in 1934 and 1935 under 
the processing tax and growers' contract plan announced 
on September 1 (now made reasonably certain by the pre- 
liminary sign-up) would make such a step entirely feasible 
so far as manufacturers or exporters of this type of tobacco 
were concerned. This course marked a departure in pro- 
cedure, since the AAA instead of waiting for a proposal 
from trade interests (which, though invited, had not been 
forthcoming) took the initiative itself in preparing a 
proposal for an agreement. 11 

The essence of the proposal was that all contracting 
buyers were to undertake to pay for the whole of the 1933 
crop such prices as would approximate parity. An 
executive committee was to name each week the average 
price to be paid by buyers, these weekly averages being so 
computed as to attain the stipulated yearly average by 
the end of the marketing season. The agreement was not 
to be limited to the current marketing year but was to 
continue unless terminated by the Secretary or expiring 
as a result of a declaration by the President that the agri- 
cultural emergency had been ended. In subsequent years 
the season's average price was to be "agreed upon between 
the executive committee and the Secretary." 

The proposed agreement also contained a provision 
that: 

The prices at which the contracting buyers or their subsidiaries or 
affiliates sell the products manufactured by them in whole or in 
part from flue-cured tobacco shall not be increased during the time 
of this agreement over those prevailing on September 15, 1933, 
unless the approval of the executive committee and of the Secretary 
is given. 

11 AAA Press Release No. 633-34. 



82 MARKETING AGREEMENTS 

Contracting buyers were obligated by its terms to "main- 
tain systems of accounting which shall accurately reflect a 
true account and condition of their respective businesses," 
to make their books and records available for examination 
by representatives of the Secretary of Agriculture, and to 
furnish information to the Secretary in accordance with 
forms to be supplied by him, such reports to be verified 
under oath. Signing of the agreement would constitute 
application for and consent to licensing. 

The stipulation as to books and records met with 
extreme disfavor on the part of the buyers, and they 
pointed out furthermore that the agreement would prove 
ineffective because it failed to make provision for the pur- 
chase of any definite quantity of tobacco under the 
schedule of prices indicated. The manufacturers insisted, 
however, that to require the price of manufactured 
products to be kept down to the September 1933 level and 
that books and records be opened to the Secretary con- 
stituted government control of the tobacco manufacturing 
industry, which they could not accept. They stated that 
they would not sign any marketing agreement which 
failed to include a provision guaranteeing them indepen- 
dence in operating their business. 

Though rejecting the Adjustment Administration's 
proposed agreement, the manufacturers suggested as a 
counter-proposal that they undertake to buy at least as 
much flue-cured tobacco as they had manufactured in the 
preceding year and to pay for it an average price of at 
least 17 cents per pound. 

They also inserted a strong statement as to freedom of 
operation, as follows : 

This proposal is possible only on the basis — a condition of its 
acceptance and of the continuance of the obligation thereof — that 



TOBACCO AND PEANUT AGREEMENTS 83 

in so far as the Agricultural Adjustment Administration has juris- 
diction in the premises, the undersigned companies are to manage, 
conduct, and operate their respective businesses with freedom of 
business policy as heretofore, it being understood that no provision 
herein made in any way limits or restricts the authority of the 
Agricultural Adjustment Administration in the matter of the 
levying of processing taxes or prevents the negotiation and making 
of marketing agreements, not inconsistent with this paragraph, with 
respect to any other type of tobacco than that included herein. 12 

The AAA on its part, though willing to accept the price and 
quantity proposal, was not willing to accept it as part of a 
marketing agreement which contained the stipulation as 
to freedom "to manage, conduct, and operate their respec- 
tive businesses with freedom of business policy as hereto- 
fore," on which the manufacturers insisted. After lengthy 
negotiations the matter therefore came to a deadlock, and 
the Adjustment Administration abandoned the effort to 
secure a marketing agreement and made preparation for 
bringing all buyers of flue-cured tobacco under a license 
requiring them to pay not less than the specified minimum 
price although with rebates to exporters which would 
safeguard them against the disruption of their business. 
Confronted by this situation, the manufacturers' repre- 
sentatives re-opened negotiations and finally accepted an 
agreement providing for both a minimum average price 
of 17 cents per pound and a quantity of purchases at least 
equal to that of the previous season. They withdrew their 
insistence on the provision limiting the regulatory power 
of the Administration and agreed "if and as required by 
the Secretary" to report under oath their usings of tobacco, 
quantities purchased, and prices paid, and to make avail- 
able such books and records as were needed to verify these 
reports. 

12 Agricultural Adjustment, AAA, p. 80. 



• 



84 MARKETING AGREEMENTS 

The controversial question of product prices was met by 
a compromise which provided that: 

During the period of this agreement the contracting buyers will 
use all reasonable effort to protect the consumers of their products 
against profiteering and agree that the price of any merchandise 
sold by them after the date hereof shall not be increased over the 
price on January 3, 1933, by more than is made necessary by actual 
increase in production, replacement, and invoice costs of merchan- 
dise, or by taxes or other costs resulting from action taken pursuant 
to the act, since July 1, 1933, and in setting such price increases, to 
give full weight to probable increases in sales volume. 13 

This January 3 price for cigarettes was 68 cents per thou- 
sand less than the price of the preceding summer but 50 
cents more than the price which obtained throughout the 
remaining weeks of the agreement period. 

The agreement was specifically stated to be "a limited 
marketing agreement, the sole purpose of which is to 
establish the minimum quantity of and price to govern 
purchase of flue-cured tobacco by the contracting buyers 
for the 1933 marketing season from September 25, 1933 
to March 31, 1934 inclusive" — not, like the first proposal, 
one which would continue from year to year. 

While this agreement was acceptable to the Tobacco 
Section, the compromise on books and records was not 
very palatable to the Secretary of Agriculture. Still the 
alternative of a license carried a strong probability that 
the government would have to engage in purchasing and 
holding operations on its own account. Hence, the Secre- 
tary on October 12, 1933 signed the agreement but wrote 
in following the word approved: "It being of course 
obvious that no officer of the government can by agree- 
ment limit or curtail any authority vested in him by law, 
nothing contained herein shall be construed by the parties 

13 The same, p. 82. 



TOBACCO AND PEANUT AGREEMENTS 85 

to this agreement as attempting to limit or curtail such 
legal authority." 

Although signed on October 12, the effective date of 
this agreement was September 25, which meant that all 
tobacco purchased on and after that date could count as 
part of the stipulated quantity and that the prices paid 
for it would be included in calculations of the average 
price. Since approximately 75 million pounds of flue- 
cured tobacco had been purchased prior to that date, the 
effect of the agreement was to provide for the absorption 
by the buyers of a substantially larger quantity than they 
had purchased in 1933. The contract further bound the 
contracting buyer to "purchase in the usual and ordinary 
manner . . . and not buy unduly of the high grades in 
order to defeat the purpose of this agreement or concen- 
trate its purchases in any geographical region" and not to 
raise prices above those of January 3, 1933 except as neces- 
sitated by actual increases in costs of production "or by 
taxes or other costs resulting from action taken pursuant 
to the Agricultural Adjustment Act." 

The exporters did not become signers of this agreement 
since they argued that any such action on their part would 
be viewed with disfavor by foreign purchasers, many of 
whom were government monopolies. They undertook, 
however, to make their prices and volume of purchases 
conform to the terms of the marketing agreement. 

In working out the flue-cured tobacco agreement major 
issues had been threshed out and a precedent established 
for using a type of "limited" price-and-quantity bargain to 
anticipate for growers the benefits which in subsequent 
seasons seemed assured under production control plans. 
The Adjustment Administration proceeded to follow the 
general pattern of the flue-cured agreement in Rwc other 
cases. In general they may be classified as to types of 



86 



MARKETING AGREEMENTS 



tobacco involved,- but there was also a differentiation 
according to the trade groups concerned — cigarette 
manufacturers, manufacturers of tobaccos for both smok- 
ing and chewing, snuff manufacturers, and by-product 
companies. The assent of the major buyers usually re- 

Tobacco Agreements Similar to the Flue-Cured Agreement 



Type 



Approved 



Effective 



Terminated 



Burleya , 

Fire-cured and dark 
air-cured, types 
21, 22, 23, 24, 35, 
and 36c 

Dark air-cured, types 
35, 36, and 37.... 

Fire-cured and dark 
air-cured, types 
21, 22, 23, 24, and 
36c 

Stemming grades of 
cigar-leaf, types 
41, 42, 43, 44, 51, 
52, 53, 54, and 55. 



Jan. 6, 1934 

Mar. 1, 1934 
Mar. 1, 1934 

Mar. 26, 1934 

June 9, 1934 



Dec. 11, 1933 

Dec. 1, 1933 
Dec. 1, 1933 

Mar. 26, 1934 

Dec. 1, 1933 



Apr. 15, 1934b 

July 15, 1934b 
July 15, 1934b 

July 15, 1934b 

June 30, 1934b 



aln this agreement concessions were made to two of the contracting 
buyers with reference to quantity of tobacco to be purchased and to 
one of them in the matter of the average price to be maintained. Also, 
all quantity agreements were to be lowered in the event that the crop 
fell below the then estimated amount of 400 million pounds. 

bExcept as to certain provisions covering final reports and adjust- 
ments. 

cThe first of these agreements was with snuff manufacturers and the 
second with by-product companies. 

suited in these agreements being virtually effective some 
time in advance of the date at which last details could be 
worked out and the signatures of the remaining buyers 
secured. After being approved by the Secretary, however, 
the quantity and price provisions were made to apply so 
far as possible to the whole of the marketing season. The 
types of tobacco covered and these disparities in dates are 
shown in the accompanying tabulation. 



TOBACCO AND PEANUT AGREEMENTS 87 

The marketing agreement for fire-cured and dark air- 
cured tobacco, types 21, 22, 23, 24, and 36, differed some- 
what from the others in its provisions governing quantity 
of tobacco to be purchased. This agreement provided 
that all tobacco remaining on the market unsold at the 
close of each marketing day should be taken by the signa- 
tory companies at a rate one-fifth to one-quarter cent less 
per pound than the rate stipulated in the agreement. 

The nature of these agreements obviated the necessity 
for administrative machinery in the field, such as the execu- 
tive committee provided in the agreement proposed for flue- 
cured tobacco or the control committees or like bodies pro- 
vided in all of the agreements which we shall have occasion 
to discuss in subsequent chapters. All that was required 
was a check by Adjustment Administration officials in 
Washington to see that the necessary reports as to quantities 
and prices were submitted and to satisfy themselves as to 
the correctness of these reports and of the payments made 
by individual buyers to make up any deficiency in prices 
paid or quantities purchased. No difficulties were en- 
countered in this connection and the agreements were re- 
garded as having accomplished their stated purpose. When 
the stipulated quantity was taken at the agreed price they in 
effect brought into force for the 1933 crop the price situa- 
tion which would be expected to obtain once the produc- 
tion controls became operative. 

The manufacturers were not averse to this agreement 
once they were assured that the supply situation in subse- 
quent years would be under control. But when the matter 
of renewing the marketing agreement in 1934 came up, 
they would have none of it. They evidently desired to 
regain their freedom from any government constraint 
and argued that production control promised to give the 



88 MARKETING AGREEMENTS 

producer parity prices or better. Even should extraordi- 
nary developments cause prices to fall below parity, the 
AAA could collect processing taxes equal to the difference. 
This fund, less a very small deduction for expenses, would 
be distributed to growers. These "limited" price-and- 
quantity agreements have therefore not been repeated. 

THE MARKETING AGREEMENT FOR PEANUT MILLERS 

Unlike tobacco, peanuts had not been included as one 
of the seven basic commodities which could be dealt with 
through processing taxes and rental or benefit payments 
under the provisions of the act of May 12, 1933. Hence, 
any action designed to assist this commodity in 1933 had 
to be taken under the marketing agreement provision. The 
first attempt was similar to that of the tobacco agreements 
in that it was planned to raise prices quickly by a collective 
bargain with processors negotiated on behalf of producers 
by the government. There were, however, substantial 
differences between the peanut agreement and the tobacco 
agreements as finally negotiated. These will appear as 
we proceed with our account of the peanut marketing 
agreement. 

Prior to the general price decline of 1920 peanut prices 
at the farm had risen to more than 9 cents per pound. 14 
During the 20's they averaged about 5 cents until 1929, 
when they were caught in a decline which carried them 
down year after year until 1932 recorded the disastrously 
low figure of 1.2 cents on December 15. 15 Prospects in 
1933 were for a crop of moderate size, and prices rose to 
2.6 cents in August. During September, however, there 
was steady and severe decline, 16 and urgent. requests were 

14 Weighted average price to producers November 15. Yearbook of 
Agriculture, 1934, Table 300, p. 574. 

15 The same, Table 301, p. 574. 

16 AAA Press Release No. 681-34. 



TOBACCO AND PEANUT AGREEMENTS 89 

forthcoming from the Virginia Co-operative Peanut 
Growers' Association and from North Carolina interests, 
headed by the Governor of the state, urging the AAA to 
take steps designed to support the price of the current 
crop. The Administration felt that nothing adequate or 
lasting could be accomplished without a production con- 
trol program. Pending such developments, however, it 
undertook to use its good offices to secure emergency 
relief. 

On October 2 Administrator Peek addressed an open 
letter to shellers and cleaners of peanuts, stating that 
the Agricultural Adjustment Administration "is deter- 
mined to take some action [in] an emergency situation." 
He asked the full co-operation of peanut shellers and 
cleaners in an emergency program consisting of two parts : 

1. To put into effect immediately a price to the farmer of at 
least $60 per ton on No. 1 Farmers' Stock Spanish peanuts, 17 $55 
per ton on No. 1 Farmers' Stock Runners, and comparable prices 
for other varieties and grades. 

2. The preparation and submission to the Agricultural Adjust- 
ment Administration at the earliest practicable date of a formal 
marketing agreement covering the marketing of peanuts from all 
producing areas, designed to control the movement to market and 
insure more satisfactory prices to growers. 

He added that the AAA was endeavoring to expedite con- 
sideration of a code of fair competition for the raw peanut 
milling industry which was designed to regulate the com- 
petitive situation. The prices suggested would not accom- 
plish the full purpose of the Adjustment Act in securing 
parity but they would represent a very substantial ad- 
vance above the scale of prices then prevailing. The 
Adjustment Administration recognized that "any perma- 

17 Then selling at about $40 per ton. 



9 o MARKETING AGREEMENTS 

nent improvement in the peanut industry must take into 
account the problem of limiting production to marketing 
demand" and was therefore already at work, in co-opera- 
tion with the growers, exploring possibilities of a plan of 
production control in 1934 if legislation could be secured. 
It was on this fact and on the increased purchasing 
power of the people being brought about, he felt, through 
a "blanket code" covering wages and hours of labor that 
he based his request for co-operation of processors in the 
temporary program of immediate price raising. 

Shellers and cleaners of peanuts responded to this 
request and advanced their buying prices in conformity 
with the Administrator's request. They also joined with 
co-operative associations and specialists of the AAA in 
preparing proposals for a formal marketing agreement. 
These were submitted on October 27, 1933 and came to 
public hearing on December 2. Besides discussion of the 
time during which minimum prices would be maintained 
and of various operating details, there was a strong effort 
made to advance the scale of prices by $5.00 per ton above 
the prices already agreed upon with the Administrator. 
This change was eventually accepted, and the agreement 
was given tentative approval by the Secretary and sent back 
to the producing territory for signature by the processors. 
A majority of the processors had participated in the formu- 
lation of the agreement and about 80 per cent of the 
milling interests signed it voluntarily. It included the 
standard request for licensing and, in order to make its 
terms binding on all, the Secretary issued the license on 
the same day that he signed the agreement — January 23, 
1934. Both agreement and license became effective on 
January 27. 

Unlike the six "limited" tobacco agreements, the mar- 



TOBACCO AND PEANUT AGREEMENTS 91 

keting agreement for peanut millers was not restricted to 
the single season in which it became effective but was so 
drawn as to continue until terminated by the Secretary or 
by the expiration of the act. A control board was author- 
ized to establish each year (by vote of not less than seven 
of its ten members) a schedule of minimum prices for the 
different varieties and grades. Initial prices were stated in 
the contract for the Rvc grades. These ranged from $55 to 
$65 a ton and were to remain in effect until changed by 
action of the control board with the approval of the 
Secretary. Other features of the agreement covered the 
use of United States standard grades, making books and 
records accessible to representatives of the Secretary and 
submitting reports to the control board, observance of 
uniform sales terms and trade practices, and standardiza- 
tion of storage charges. 18 Five members of the control 
board were to be elected by the processors and five by the 
growers. 

This marketing agreement also contained a provision 
(Article VI, Section 2-e) that the control board on its own 
initiative or in co-operation with the Secretary should 
make an investigation of the problem of controlling the 
production of peanuts in 1934 or of controlling the supply 
to be marketed from the 1934 crop. Results of this investi- 
gation, together with recommendations of the control 
board, were to be reported in writing to the Secretary on 
or before February 1, 1934. 

18 A code of fair competition for the raw peanut milling industry was 
approved on Jan. 12, 1934 under the NRA. This had first been submitted to 
the AAA but was transferred to NRA by the President's order of Jan. 8, 1934. 
Besides matters dealing with hours, wages, and labor conditions, this code also 
covered unfair methods of competition. 

19 These grower representatives were to be nominated by the Secretary in 
1934 for the purpose of facilitating prompt organization of the first board. 



92 MARKETING AGREEMENTS 

Under the voluntary response of processors to Adminis- 
trator Peek's request in October, and subsequently under 
the agreement and license of January, processors main- 
tained peanut prices at the stipulated level. Nothing in 
the agreement, however, bound them to purchase any 
fixed quantity of the product, and by the summer of 1934 
growers in some sections 20 began to find themselves left 
with considerable quantities of peanuts for which they 
could not find a buyer or which they could market at the 
contract price only by paying a storage charge so excessive 
as to constitute a scaling of the price. In this situation 
farmers turned to "contract shelling." That is, they took 
their peanuts to the mill to be shelled and prepared for 
market on a service-charge basis, there being no resale price 
provisions in the agreement or license. The producer then 
sold his product direct to candy manufacturers and others 
at such prices as it would bring. This competition brought 
the price of the finished product to a level where millers 
could not recoup their costs on peanuts bought in the shell 
from growers at the price stipulated in the agreement. 21 
This brought buying to a complete stop and in the face of 
prospects for a very large new crop made it evident that 
nothing further could be accomplished under a marketing 
agreement which merely established minimum prices and 
provided no means for handling the surplus. 

Even before this time, proposals for the amendment of 

20 Chiefly in the Southeast, to a much less extent in the Southwest, and not 
at all in the Virginia area. 

21 To some extent the ability of millers to pay the agreed prices and still 
dispose of the product at a profit appears to have depended on the fact that 
they had bought considerable quantities of peanuts before the agreement prices 
became effective and averaged their lower priced raw material with later 
purchases. By late summer it became evident that the 1934 crop would be 
very large and thus the problem of maintaining prices became increasingly 
difficult. 



TOBACCO AND PEANUT AGREEMENTS 93 

the agreement had been under way. In order to under- 
stand these developments, we must retrace our steps to 
February 1934. In accordance with the section of the 
agreement which instructed the control board to investi- 
gate possibilities in the direction of production control, 
a report had been submitted to the Secretary on February 
9, recommending that peanuts be made a basic commodity 
under the Agricultural Adjustment Act and that a pro- 
duction control program be initiated as soon as this result 
could be brought about. 22 These recommendations in- 
cluded the making of allotments to growers covering the 
acreage of peanuts which they would be permitted to mar- 
ket for cleaning and shelling, all peanuts produced in 
excess of this amount to go to by-product uses. 23 Possibili- 
ties in this direction were carefully considered by the AAA 
and in the amendments to the Adjustment Act, passed on 
April 7, 1934, peanuts were added to the list of basic crops, 
so as to permit the levying of a processing tax. 

In March the AAA brought forward a plan (subject 
to the passing of the amendment making peanuts a basic 
commodity) for setting a limit on the quantity of peanuts 
that could be purchased for cleaning and shelling. This 
amount would be allotted to districts and to individual 
growers, and any excess could be marketed only to oil 
mills or other low-priced outlets. Such a diversion plan 
was at this time facilitated by reason of the fact that the 
reduction in the cotton crop had so curtailed the supply 
of cottonseed oil as to make a relatively more favorable 
market situation for peanut oil, and the drought had 
created a strong demand for all kinds of stock feed. 

A public hearing on this proposal was held on July 14. 

22 AAA Press Release No. 1822-34. 

23 AAA Press Release No. 2173-34. 



94 MARKETING AGREEMENTS 

Considerable opposition to amending the marketing agree- 
ment in this manner developed on the part of millers both 
at this hearing and at additional hearings which were 
held in Virginia, Georgia, and Texas later in the 
month. Prices had risen while the marketing agreement 
was in force from 1.6 cents per pound to 2.9 cents accord- 
ing to AAA figures, 24 but this was still far below the 
parity price of 5.6 cents, and it was doubtful if even such a 
level could be maintained when the heavy new crop began 
to move. Since the millers were unwilling to accept the 
AAA's proposal for adding a surplus disposal arrange- 
ment to the marketing agreement, it was felt that a 
satisfactory condition could not be brought about except 
by the inauguration of a production control program. 
Accordingly, it was announced on August 23 that such a 
program would shortly be inaugurated, and a public hear- 
ing was called for August 31 to consider the amount of the 
processing tax and details of the control program. 

On August 30 millers and shellers of peanuts after con- 
ference in Washington notified the Adjustment Adminis- 
tration that they did not desire to enter into a further 
marketing agreement. It was argued by the AAA that 
the marketing agreement would operate to the benefit of 
millers and users of the product since it would permit the 
levying of a smaller processing tax than would otherwise 
be necessary. A large number of processors, however, 
petitioned for the cancellation of the marketing agree- 
ment, and it was accordingly terminated by the Secretary's 
order on September 29. On October 1 a processing tax 
of one cent per pound was put into effect. This tax was 
to provide funds for the making of "diversion" payments 
on peanuts (up to 20 per cent of the crop) diverted to oil 

24 AAA Press Release No. 440-35. 



TOBACCO AND PEANUT AGREEMENTS 95 

mills for crushing or baled by the grower for feed uses. 
In addition to this, it was to provide benefit payments to 
growers who would enter into a contract to reduce their 
1935 acreage. 

Thus the peanut marketing agreement, like the limited 
tobacco agreement, served as an emergency measure for 
direct price enhancement pending the development of a 
production control program or, as it finally worked out, a 
surplus diversion and production control plan. It had been 
drawn in the standard form providing for continuation be- 
yond the one year but with the expectation that it would be 
so amended as to provide a means of surplus control. Since 
the millers were unwilling to accept these proposals as part 
of the marketing agreement, it was terminated after eight 
months of operation. Owing to the lateness of the date at 
which it became operative and the lesser degree of soli- 
darity among the buyers' group, it was less effective in its 
operation than the tobacco agreements. 

THE CONNECTICUT VALLEY SHADE-GROWN 
TOBACCO AGREEMENT 

Returning now to the question of cigar types of tobacco 
(see page 78), we find a marketing agreement consider- 
ably different from the simple price-quantity agreements 
which we have been discussing with reference to peanuts 
and to the other types of tobacco. For the filler and binder 
types production control plans were worked out during 
the summer of 1933. With reference to the cigar-wrapper 
types, however, the comparatively small amount of money 
which would be made available through processing taxes 
and the high value per acre of this crop made the process- 
ing tax approach more difficult. It was eventually worked 
out for the Georgia-Florida shade-grown area, but the 



96 MARKETING AGREEMENTS 

Connecticut Valley shade growers elected to use the mar- 
keting agreement. This tobacco is produced by a very 
small number of growers, some of whom operate under 
contract with the handlers but many of whom are them- 
selves handlers of the product. Over 90 per cent of the 
handlers became signers of the agreement, and it became 
effective on December 11, 1933. The one handler remain- 
ing outside the agreement was brought under its terms by 
license, effective January 17, 1934. Subsequently he signed 
the agreement, as did also two new handlers. 

The basic feature of this agreement is that it provides for 
a schedule of minimum prices at which each grade of 
wrapper tobacco may be purchased from the grower. 
Actually only schedules for sales by handlers have been set 
up, as such prices represent direct returns to growers and 
cover the first sale of nearly all the crop. In order to 
support this price structure an allotment is made to each 
grower of the acreage which he is permitted to produce. 
An acreage committee, after study of the condition of the 
industry, makes this information available to the Secre- 
tary of Agriculture, who before February 2 of each year 
determines the total acreage which it is deemed advisable 
to produce. This total acreage is allotted by the committee 
to the individual growers on the basis of their previous 
production, subject to approval of the Secretary. As a 
means of making this production control effective, the 
agreement provides that no handler may purchase any 
tobacco not covered by a production allotment made to 
some grower. 25 The share which each handler may have 
in the total is allotted to him in the form of a "base hand- 

25 Likewise he may not handle the tobacco of any grower who has increased 
his production of any agricultural product covered by another production 
control plan. 






TOBACCO AND PEANUT AGREEMENTS 97 

ling acreage" by the control committee — in part, on the 
basis of the acreage which he handled in the calendar years 
1930-33 but with such adjustments as the committee deems 
necessary, subject to the approval of the Secretary. 

The Connecticut Valley agreement also provides for 
establishing a schedule of minimum prices for tobacco sold 
by contracting handlers to the trade. These schedules are 
fixed by the control committee but are subject to the prior 
approval of the Secretary. The use of United States 
standard grades, when adopted by the Bureau of Agricul- 
tural Economics, was to be binding on the handlers. This 
step was taken by the Bureau in time to be effective for the 
1933 crop. The terms of inspection, method of packing, 
and sampling, sales terms, and brokerage charges are also 
provided in the agreement. 

Unlike the six price-and-quantity agreements discussed 
in the first section of this chapter, the Connecticut Valley 
shade-grown agreement is not limited to a single season 
but continues in effect as long as the Adjustment Act is in 
force unless terminated by the Secretary on his own 
motion or at the request of 75 per cent of the contracting 
handlers. It is now in its second season of operation, has 
encountered no serious difficulties in enforcement, and 
is regarded as a valuable stabilizing force in this industry. 



CHAPTER VI 

RICE MARKETING AGREEMENTS 

The marketing agreements for rice were similar in gen- 
eral scope and character to that for Connecticut Valley 
wrapper tobacco, and thus illustrate a third type of experi- 
mental use to which the marketing agreement provisions 
of the Adjustment Act were put during the early days of 
the market adjustment program. In this third type of use, 
the marketing agreement embodies a production control 
plan. Owing to the peculiar conditions obtaining in the 
shade-grown tobacco industry, acreage control was effected 
under a mere allotment system without benefit payments. 
In the rice industry, however, benefit payments were made 
in a manner essentially similar to that used under Section 
8 (i) of the act but from funds secured by withholding 
part of the purchase price rather than through the imposi- 
tion of a processing tax. 

Rice, like tobacco, was one of the basic commodities 
enumerated in the Adjustment Act as originally passed, 
and thus from the start eligible to the processing tax and 
production control provisions of the law. The marketing 
agreement method was chosen as the sole means of deal- 
ing with the commodity, partly because of difficulties in 
using the processing tax device and partly because of rather 
unusually favorable conditions which were presented in 
California for trying out the marketing agreement ap- 
proach. The failure which resulted from the attempt to 
use an adapted form of the California plan in the Southern 
rice area soon showed the limitations of the method. 

The processing tax difficulty arose from the fact that rice 

9 8 



RICE MARKETING AGREEMENTS 99 

prices had been rising toward parity during the summer 
of 1933 as a result of the short-crop prospect, together with 
the speculative enthusiasm which had been engendered by 
the inclusion of rice in the act as a basic commodity. This 
price situation meant that if a processing tax were named 
it would have to be small in amount, whereas conditions 
pointed to the possibility of a large crop in 1934, necessitat- 
ing heavy benefit payments. 

Against this difficulty which would confront an effort 
to use the processing tax, the general situation in the in- 
dustry was such as to facilitate the employment of the 
marketing agreement. The rice industry is geographically 
compact (in two areas) and the number of processors 
small and, like the growers, well localized. Co-operative 
organization among rice producers had been rather ex- 
tensively developed in California and to some extent in the 
South, and both co-operatives and processors were favora- 
bly disposed toward the idea of a marketing agreement. 

Furthermore, co-operatives and rice millers of the Pacific 
Coast area had in previous years joined in a price-stabilizing 
export plan which they had operated with a considerable 
degree of success. 1 At the time the AAA was getting 
into operation, they were just completing a similar joint 
undertaking with reference to the crop of 1932. These 
experiences furnished something of a pattern for the mar- 
keting agreement under the AAA, as well as contributing 
to the sense of confidence that such an agreement might 
prove workable. With the processing tax method not 
practically available, officials of the Adjustment Adminis- 
tration welcomed the opportunity to develop the market- 

1 E. L. Adams, "Marketing California's Surplus Rice Crop," American 
Co-operation, 1927, Vol. 1, pp. 446-58; and also "Experience with Surplus 
Disposal and Control Plans," the same, 1928, Vol. 2, pp. 395-403. 



ioo MARKETING AGREEMENTS 

ing agreement under such favorable conditions. Some, 
at least, of those who worked on the plan during the sum- 
mer of 1933 thought of it as a sort of laboratory test of 
the efficacy of the marketing agreement provision as a 
major adjustment device, including control of production. 

SITUATION OF THE INDUSTRY AND OBJECTIVES 
OF THE PLAN 

Rice production in the United States is limited to two 
relatively restricted areas — one in southern Louisiana, east 
central Arkansas, and southeastern Texas, and the other 
in the Sacramento and San Joaquin valleys of California. 
Increase of acreage was strongly stimulated in the 
period from 1917 to 1920, in which year it stood at 1.3 
million acres. The following year it dropped to 1 million 
but was still at practically that same point in 193 1. The 
United States was on an import basis until 19 18, since 
when we have had net exports in every year except 1925. 
There is a considerable movement from the continent to 
Hawaii and Puerto Rico, within our tariff boundaries. 
Acre yields have shown a considerable tendency to in- 
crease, whereas demand has been falling off in the most 
desirable import markets of Europe. This has been due not 
only to the low purchasing power and the competition 
of Oriental rice, but also to the hampering of foreign trade 
by import tariffs in several of the consuming countries, by 
export bounties (such as that in Italy), and by the Rice 
Control Act in Japan. Domestic demand also was ad- 
versely affected after 1929 by the general depression in this 
country. 

The December 1 farm price of rice fell from an average 
of $1.16 in the seven-year period 1919-26 and $0.78 in 1930 
to $0.42 in 1932, and the carry-over had risen from a nor- 
mal of about 100 million pounds to 220 million in 1932. 



RICE MARKETING AGREEMENTS 101 

Growers had reduced acreage in that year by 10 per cent 
as compared with 193 1, and there was a slightly greater 
rate of decline in 1933 planting. Even so, the size of the 
carry-over and the continuance of depressed demand in 
both domestic and foreign markets left the industry in a 
very unsatisfactory position. In view of the acreage reduc- 
tion already effected, it appeared that the immediate prob- 
lem was one of providing some means for liquidating the 
abnormal carry-over on as favorable terms as possible, 
meanwhile making sure that acreage should not again 
increase greatly. 

On the price side, it was desired that prices be brought 
immediately to — or as far as possible toward — a parity 
basis. In terms of market conditions, it was desired to 
eradicate certain long-standing trade practices on the part 
of some rice millers, which were regarded as harmful to 
the producer. 

With these several objectives in mind, rice interests be- 
gan to move toward the setting up of a marketing agree- 
ment almost immediately after the passage of the act. 
Separate agreements were drawn for the two producing 
territories. While they differed in detail, they were har- 
monious in purpose, provided for co-ordination com- 
mittees, and together constituted essentially a national plan 
for the industry. In the Southern region, but not in 
California (where the small number of handlers all be- 
came signers of the agreement), the license was issued to 
accompany the agreement and a code of fair competition 
was also adopted. 

THE CALIFORNIA AGREEMENT 

Representatives of California rice growers and millers 
began informal discussion of an adjustment plan with the 
Administration in May 1933, and by June 5 were ready 



102 MARKETING AGREEMENTS 

to submit their proposals in a second conference, in which 
they were joined by the Southern group. These proposals 
called for "trade agreements with eventual measures of 
acreage control." 2 At a formal hearing in Washington 
on August 29, a marketing agreement proposal was sub- 
mitted on behalf of the Rice Growers' Association of 
California, the Independent Rice Growers' Committee, 
and the eight milling firms which constitute the whole of 
the California rice-milling business. Since this proposed 
agreement had been worked out by the producer and 
processor agencies at home and they had arrived at essen- 
tial agreement before coming to Washington, no opposi- 
tion developed in the hearing except that the independent 
growers protested at the rate of the milling charge. This 
was promptly reduced in accordance with their views and, 
on September 26, 1933, Secretary Wallace signed the com- 
pleted agreement, which became effective on that day. 
All the California rice millers signed the agreement, as 
did also the Rice Growers' Association and the Indepen- 
dent Rice Growers' Committee, together representing all 
but a small fraction of the acreage. This remaining acre- 
age was represented by the Paddy Rice Growers of Cali- 
fornia, a nominal organization of non-conformists which 
was allotted one member on the "crop board," although 
it did not become a signatory. 

The California rice marketing agreement set up two 
administrative committees known as the marketing board 
and the crop board. The former was composed of 
one representative for each miller and a neutral non-voting 
chairman selected by these members. This board was 
charged with the duty of supervising the performance of 
the marketing agreement and of acting as intermediary 

a AAA Press Release No. 1282-33. 



RICE MARKETING AGREEMENTS 103 

between the parties to the agreement and the Secretary 
of Agriculture, and "in general shall be the means by 
which policies, prices, terms of sales including uniform 
brokerages, other allowances, etc. are determined from 
time to time." The vote of each member was weighted 
according to the volume of milling normally done by the 
organization which he represented. 

The crop board was responsible for making acreage 
allotments and was composed of eight members, two se- 
lected by the Rice Growers' Association, two by the Inde- 
pendent Rice Growers Committee, one by the Paddy Rice 
Growers of California, one chosen by the co-operative from 
two persons nominated by the independent growers, and 
one chosen by the independents from two nominees of the 
co-operative. Both of these latter members were required to 
be growers but not connected with either the co-operative 
or the independent growers' association. The chairman of 
the marketing board served as the eighth member of the 
crop board. 

The price system set up under this marketing agreement 
consisted of three parts. First was the "Secretary's price" 
for clean rice established when the agreement became effec- 
tive and subject to change from time to time at his discre- 
tion, on his own initiative, or in response to recommenda- 
tion of the marketing board, with the concurrence of an 
alternative proposal from the crop board. Second came 
"base prices" determined by a 60 per cent affirmative vote of 
the marketing board but limited to a range not exceeding 
5 per cent above or below the "Secretary's price." Third 
were "producers' prices" for paddy, to be computed by the 
marketing board from the "base price" for clean rice, this 
computation to be in accordance with a schedule of differ- 
entials attached to the marketing agreement. Besides a 



io 4 MARKETING AGREEMENTS 

"fair milling charge" of 30 cents per 100 pounds of paddy, 
these covered transportation costs, "bag allowance," hand- 
ling and appraisal charges, brokerage of 8 cents per 100 
pounds of milled product, and 1 per cent discount for cash. 

The marketing board was authorized, with the approval 
of the Secretary and the concurrence of the crop board, to 
levy a marketing assessment in such amount as it deemed 
necessary in order "to promote the sale of a portion of the 
available supplies at any given time into non-routine mar- 
kets." Such sales were exempt from the provisions 
covering trade prices, and "the supply of rice to complete 
such sales shall be prorated among the millers on the basis 
of normal volume percentages 3 to the extent the prospec- 
tive millers desire such business." 

The agreement also provided for a "millers' trust fund" 
to which the millers paid each month the amount 
of 10 cents for each bag of paddy processed during the 
preceding month. If any miller exceeded his quota 
during this time, he was required to pay an additional 10 
cents for each bag of such excess, and if such payments 
were not made by the sixteenth of the month following 
the processing operation, an additional charge of 5 cents 
per bag was made on all paddy processed during the pre- 
ceding month. At the end of the year, this millers' trust 
fund, less any necessary expenses, was returned to the 
respective millers according to their several "normal 
volume percentages, except that a miller who has exceeded 
his quota for the preceding 12 months shall receive only 
one-half of the normal volume percentage for the amount 
contributed by him for such excess." 

Furthermore, if the marketing board after proper in- 

3 As provided in Schedule A attached to the marketing agreement. These 
ranged from a minimum of 1.5 per cent to a maximum of 37.5 per cent of 
the total business. 



RICE MARKETING AGREEMENTS 105 

vestigation determined that a miller had failed to abide by 
the agreement "or any sales terms, rules, regulations, or 
policies prescribed by the marketing board pursuant there- 
to," it deducted from such miller's share in the millers' 
trust fund a sum not exceeding four times the profit 
realized from such transactions as estimated by the mar- 
keting board, such damages in no event to be less than 
$500. Sums so deducted were distributed to the other 
millers in proportion to their respective normal volume 
percentages. 4 As a further means of effecting the enforce- 
ment of the contract, it was provided that each miller 
should maintain a proper system of accounts and keep 
his books and records subject to the examination of the 
Secretary of Agriculture "in the furtherance of his duties 
with respect to the agreement." 

The second principal feature of the California rice mar- 
keting agreement was a production control plan to be put 
in operation by the crop control board if production 
promised to exceed 3 million bags. This control plan 
allowed each grower an allotment based on his production 
of rice during the previous five years, the total, however, not 
to exceed 3 million bags by more than 10 per cent. To in- 
stitute a production control program, the crop board began 
by requiring that each producer who desired to participate 
file a written statement of intentions to plant during 
the ensuing season. In case these statements indicated a 
production in excess of 3 million bags, a control pro- 

4 When the marketing agreement was first under consideration, the Cali- 
fornia rice millers also drew up a code of fair competition which was sub- 
mitted to the AAA. In view, however, of the return of agricultural industry 
codes to the NRA by Executive Order of Jan. 8, 1934, and the inclusion of 
trade practice provisions in the marketing agreement, the matter of a separate 
code was dropped. The millers continued to operate, so far as labor and wage 
provisions were concerned, under the President's Re-employment Agreement, 
the "blanket code." 



io6 MARKETING AGREEMENTS 

gram was at once declared to be operative. If the total 
showed less than 3 million bags, the board, as soon as 
possible after June 1, had a field survey made of land 
actually planted. "If the average production of land so 
found to be planted and under cultivation in the estima- 
tion of the crop board exceeds 3 million bags, then the 
crop board, with the approval of the Secretary, shall im- 
mediately declare a crop control program to be operative 
for such crop with producers participating on the basis 
and to the extent of the statements of intentions to plant 
or not to plant filed before the date previously set by the 
crop board." (Article IX, Section 2.) 

The crop board then assigned each grower a quota in 
accordance with his preceding five-year production record. 
Compliance with this quota could be checked by reason 
of the fact that there was no market for paddy rice except 
at one of the seven mills which operated under the market- 
ing agreement. Any producer "bringing to harvest acre- 
age in conflict with his statement" could not participate in 
the crop control program. In order to make this crop 
control program effective, the grower on delivery of rough 
rice to the mill for cleaning was paid only 60 per cent of the 
prevailing scale of growers' prices. 5 The remaining 40 
per cent of the purchase price was paid into a growers' trust 
fund. Upon furnishing evidence satisfactory to the crop 
committee that he had complied with the terms of the acre- 
age control plan, the grower received as final settlement 
for his paddy his pro-rata share in the growers' trust fund. 
Any grower who had not indicated his desire to partici- 
pate in the control program by filing a written produc- 
tion record and statement of intentions to plant received 

5 Seventy per cent in the original agreement but changed by amendment of 
Mar. 2, 1934 to 60 per cent, the rate employed in the Southern rice marketing 
agreement. 



RICE MARKETING AGREEMENTS 107 

only the initial payment of 60 per cent of the scheduled 
price and did not participate in the trust fund. Disburse- 
ments from this fund were made on January 1, March 1, 
and July 1 following the harvesting of a given crop. 

Inasmuch as all the millers in the California area signed 
the marketing agreement, no license was issued at that 
time. Subsequent developments which we shall discuss 
later in the chapter, however, caused a license to be issued 
on December 21, 1934. 

THE SOUTHERN AGREEMENT, LICENSE, AND CODE 

The evolution of the rice marketing agreement in the 
Southern territory differed considerably from that of 
the California agreement. No such unity of action or 
solidarity of interests had previously been developed be- 
tween millers and growers of that section. The first effort, 
therefore, was toward getting an agreement which would 
assure a remunerative price to growers and the regulation 
of charges and trade practices on the part of the millers. 
After informal conferences and hearings, both in Wash- 
ington and in Louisiana, a formal hearing was held on 
September 5 and 6, at which substantial agreement was 
secured, except on the amount of the milling or "conver- 
sion" charge. To settle this point the government made 
an audit of several Southern rice mills and proposed a 
figure for the conversion charge lower than that proposed 
by the Southern millers. This was accepted by the millers' 
committee, and on September 29 the marketing agreement 
was presented to a meeting of the Southern rice millers 
in New Orleans. All but three signed it, two of the three 
being the largest millers in the industry. They joined 
with the other 35, however, in requesting the Secretary to 
put all under license as a means of making the agreement 



108 MARKETING AGREEMENTS 

effective. Their unwillingness to sign the agreement was 
based not on its price or conversion charge features but on 
the powers conferred on the control committee which it 
set up. Later they both signed the agreement and, upon 
approval by the Secretary of Agriculture, it became effec- 
tive on October 16, 1933. A license essentially identical in 
its terms became effective on October 17. 6 

For the purpose of supervising the performance of the 
marketing agreement and to represent the millers in deal- 
ings with the Secretary, a control committee of seven mem- 
bers — two for Arkansas, two for Louisiana, and three for 
Texas — chosen by majority vote of all the millers was 
set up. This was analogous to the marketing board under 
the California agreement. No crop board representing 
growers such as that set up under the California agreement 
was provided under the original Southern agreement, since 
no acreage control features were included (see page no). 

This agreement, like the one for California, established 
a minimum price basis to be determined by the Secretary 
of Agriculture. Instead of starting with a clean rice price, 
however, and deriving the paddy price from it, the South- 
ern agreement provided that the Secretary of Agriculture 
"shall fix minimum prices for No. 1 grade, prime milling 
quality of each variety of rough rice," the schedule for 
other grades to be computed by the millers in accordance 
with a scale of differentials attached to the agreement. 7 
Resale prices were also established, it being provided that: 

6 Unlike the California rice industry, the Southern millers also completed a 
code of fair competition and it was approved by the President on Nov. 21, 
I 933- Besides covering hours, wages, and general labor provisions, it had a 
section on unfair methods of competition which included false advertising, 
misbranding, producer standards, milling of rice not purchased by the miller, 
rebating, and like matters. 

7 These differentials could be changed by the Secretary if he did not con- 
sider that they accurately reflected relative market values. Likewise he could 



RICE MARKETING AGREEMENTS 109 

No miller shall sell or offer for sale for domestic consumption 
clean rice milled from a barrel of rough rice for less than the actual 
cost or replacement cost of such barrel of rough rice delivered at 
the mill, 8 plus the cost of conversion, the actual cost of the container 
and the marketing fund charge hereinafter provided for. 

The milling charge or cost of conversion was set at 70 
cents per barrel of rough rice, subject to change by the 
control committee with the approval of the Secretary. 
Uniform terms of sale and brokerage charges were also 
provided, as well as rules of general trade practice which 
forbade mixing, guaranties against changes in price, selling 
on consignment, rebating, free storage, misrepresentation, 
or misbranding. 

The Southern rice marketing agreement, like that for 
California, contained a provision for a "marketing fund." 
Each miller was to pay into this fund the sum of 10 cents 9 

change the minimum price upon reasonable advance notice to the control com- 
mittee. The latter also could propose to the Secretary such changes in mini- 
mum prices as it thought desirable. 

8 Amended December 8 to eliminate original cost as a price basis. This 
was stated to be in the interest of simplification of enforcement of the agreement. 
Other changes of the same date called for the showing of evidence that the 
grower had received not less than the minimum price (thus eliminating specu- 
lative buyers between producer and mill) and brought exporters within the 
definition of "millers" in order to prevent export sales of rough rice from 
being made at less than the established price. 

Amendment of Jan. 10, 1934 added to the section covering prices of clean 
rice three additional sections providing that the control committee might 
establish schedules of minimum prices based "in so far as possible on the 
items of cost enumerated in the original agreement." The committee might 
also establish schedules of minimum prices for export sale. The latter section 
made no mention of the minimum schedule of paddy prices, the standard 
conversion charge, and other cost items as a base for such export prices. 

9 Millers had had an ambitious plan of "industry advertising" to be sup- 
ported from this fund. The Adjustment Administration, however, ruled that 
this was not a proper charge to be assessed on licensees. To meet this situa- 
tion, the charge was reduced to 5 cents by amendment effective July 21, 1934, 
it being expected that the signatories to the agreement would continue the 
advertising plan through voluntary contributions of an additional 5 cents for 



no MARKETING AGREEMENTS 

for each barrel of rough rice milled by him during the 
preceding month. If this had not been paid by the six- 
teenth day (later changed to the twenty-second) of the 
month following milling, the assessment would be in- 
creased to 15 cents per barrel. Any surplus remaining 
in the marketing fund after paying expenses incurred by 
the control committee was to be used at the discretion of 
that committee "to increase consumption of American 
grown rice, create new markets, and to maintain reason- 
able domestic prices by financing the export of rice." 

The original marketing agreement for the Southern 
rice territory did not contain production control provi- 
sions, consideration of this matter having been largely 
deferred while marketing and milling issues were being 
disposed of. Thereafter attention was turned to a produc- 
tion control plan for 1934, which would be effective in 
keeping acreage at or below the level of 1933 in spite of 
the encouragement given by higher prices. After a series 
of local meetings at which growers considered the nature 
of the problem and made suggestions, it was agreed that 
an acreage cut of 20 per cent should be sought, and that 
growers would be given allotments on this basis. Each 
grower's share would be proportionate to his production 
during the preceding five-year period. 10 This plan was 
discussed at hearings held at Shreveport, Louisiana on 
January 22 and, after being accepted by the millers as an 

that purpose. By this time, however, both agreement and license were break- 
ing down and practically no payments to the marketing fund were made after 
mid-summer. 

10 The Adjustment Administration assigned state quotas on this basis, and 
Louisiana and Arkansas followed the same procedure in arriving at individual 
quotas. Texas, though bound by the five-year basis for her total, made alloca- 
tions to individual growers on the basis of the average of the three preceding 
years. 



RICE MARKETING AGREEMENTS in 

amendment to their marketing agreement, was approved 
by the Secretary of Agriculture and became effective on 
March 6. 

It had been the intention merely to add the crop control 
provision as an amendment to the existing marketing 
agreement. Through an administrative slip, however, the 
old agreement was terminated and the amended form set 
up as a new agreement. This added somewhat to the 
difficulties of the situation, since several millers took this 
opportunity to escape from the agreement by refusing to 
sign the new document. 

The crop control feature of the new Southern rice mar- 
keting agreement provided that, beginning July i, 1934, 
the miller should withhold 40 per cent of the schedule 
price of any rough rice purchased by him. Unlike the 
California agreement, which had placed the administra- 
tion of the crop control plan and of the fund derived 
from withholding part of the purchase price in the hands 
of the industry, the Southern agreement provided that the 
payments of the withheld portion of the price should be 
made to the Secretary of Agriculture, to be paid out by 
him to such growers as complied with the terms of the con- 
trol program. 

The procedure laid down was as follows: First, the 
Secretary should determine the total quantity of rice to 
be produced in each of the states. Second, producers 
would be invited to submit applications for acreage allot- 
ments and production quotas, stating the acreage planted 
and rough rice produced in each base year designated by 
the Secretary. Third, the Secretary should allot to the 
several producers quotas of such proportion of their base 
production as would bring the total product up to the 
quantity which he had determined it was desirable to 



ii2 MARKETING AGREEMENTS 

produce. Each producer furnishing satisfactory evidence 
that he had limited his planted acreage to the allotment 
assigned him should by the end of the crop year receive 
payment which, added to the payment received when he 
delivered his rough rice to the mill, would not exceed the 
"Secretary's price" for rough rice. That is, he would 
receive the withheld 40 per cent of the price less his share 
of the expenses incurred in carrying out the production 
control program. 

Procedure under the Southern agreement differed from 
that in California in that the making of allotments was left 
in the Secretary's hands rather than being turned over to 
a crop board representative of producers. However, 
for the purpose of administering the provisions of the 
production control program, the Secretary might set up 
a committee or committees to "verify applications, com- 
pute production quotas and acreage allotments, check 
acreage seeded by producers, and to perform such other 
functions as the Secretary may designate." By amend- 
ment effective July 21, 1934, there was established a pro- 
ducers' committee of seven members selected by the Secre- 
tary "to act as an intermediary between the Secretary and 
producers and between the millers and producers." It 
was to settle complaints which concerned only the interests 
of producers, and to investigate suspected violations of the 
agreements where the grower was a party to such viola- 
tion, and to sit with the millers' committee to decide dis- 
putes and complaints which concerned both producers and 
millers' interests. 

This amendment likewise supplemented the millers' 
(control) committee by a new millers' advisory council. 
One member of this council was to be selected by each 
miller signing the agreement or brought under any license 



RICE MARKETING AGREEMENTS 113 

supplementary to it. The advisory council was given 
power to select the members of the millers' committee, to 
advise with it, and to act as intermediary between it and 
the millers. No member of the advisory council could 
qualify for membership unless the miller whom he repre- 
sented had filed with the rice section of the AAA a state- 
ment of the volume of rough rice milled or exported by 
such miller during the three preceding crop years. 

ABANDONMENT OF MARKETING AGREEMENTS 

It will be observed that the Southern rice marketing 
program, with its production control system directly under 
the Secretary of Agriculture, bore a closer resemblance to 
the commodity programs operated under Section 8(1) of 
the Adjustment Act than it did to the California marketing 
agreement supervised more largely by the industry or to 
other marketing agreements discussed in subsequent chap- 
ters. This difference grew out of solidarity in the Southern 
rice industry and in turn led to further complications. The 
attempt to collect the funds to be used in benefit payments 
as withholdings from the purchase price encountered diffi- 
culties from the start. Only such millers as were signatory 
to the agreement were bound by the plan. Other licensees, 
though brought under the same minimum price schedules 
and trade practice provisions as were the signers of the 
agreement, were free to pay the full paddy price to the 
grower when he delivered his rice to the mill. This im- 
mediately gave them a market advantage and tended to 
draw business into their hands at the expense of millers who 
were participating in the production control program. 

Furthermore, the growing conditions were favorable 
and compliance with the production allotments not per- 
fect. Some over-quota rice was also available at prices 
below the established minimum schedule. This situation 



ii4 MARKETING AGREEMENTS 

created a strong temptation to evasion of the agreement 
and, particularly in the Louisiana district, a considerable 
number of new mills sprang up to take advantage of it. 
Most of them were of a very simple "huller-miH" type not 
capable of producing a polished white rice of high mer- 
chantable quality. It did, however, find ready sale in the 
local territory, where per capita consumption is very high. 
This tended to create unfair competition for the millers 
who were attempting to operate in conformity with the 
agreement, and they also encountered a certain amount of 
high-grade "bootleg" rice which found its way out of the 
local territory into the principal clean rice markets. 

A succession of amendments were devised to meet these 
situations. One of them made grading of rough rice 
under the inspection service of the United States Bureau 
of Agricultural Economics compulsory as soon as the 
necessary machinery could be set up. Such standardiza- 
tion was necessary in order to check evasions of the mini- 
mum price schedules and to assure the grower the full 
price contemplated under the agreement. 11 On July 23, 
growers were allowed a leeway of 5 per cent in plantings 
above their individual allotments. On August 27 a new 
ruling permitted growers to harvest all their acreage; but, 
if this should exceed their allotment by more than 5 per 
cent, the amount of the adjustment payment was to be 
reduced 1 per cent for each 1 per cent of the acreage excess. 
This concession to individual growers was regarded as 
appropriate since total acreage was estimated to be slightly 
under the total allotment 12 and since the drought situation 
made it desirable that all food products be conserved. 

11 Such grading and inspection was made effective on August 20 by adminis- 
trative order of the Secretary of Agriculture. 

12 However, December crop estimates showed the acreage to be about 6 per 
cent above the allotment. 



RICE MARKETING AGREEMENTS 115 

On September 17 a new administrative order set aside 
the check-off" method of payment provided in the agree- 
ment as to all rice which came within the grower's quota; 13 
that is, a grower could thereafter receive at the time of 
delivery to the mill the full 100 per cent of the base price 
on all except over-quota rice. On September 28 certain 
of the discounts in the schedule by which the various 
grades were adjusted to the base price were altered so as 
to prevent unduly heavy penalties on certain types of 
damaged or inferior rice. Finally, on October 15 the 
growers' market price was advanced on 13 varieties and 
a reduction made in the conversion charge allotted to 
millers. 

These latter changes were designed to remedy what was 
considered to be an unduly wide margin between growers' 
prices and resale prices as formerly provided under the 
agreement and license. Subsequent events, however, 
seemed to indicate that the new adjustment erred in the 
other direction, and difficulties in carrying out the pro- 
gram, instead of disappearing, advanced to an acute stage. 
There arose a widespread demand from both millers and 
growers that the crop control plan be abandoned. This 
request was complied with on December 21. Thereafter 
effort was centered upon the formulation of a processing 
tax and production control program of the general type 
provided in Section 8(1) of the act. 14 To meet certain 
phases of the situation, however (notably exemption from 
the tax on floor stocks), new legislation was necessary. 
Hence a bill to amend the Agricultural Adjustment Act 

13 On December 21 full payment at time of delivery was authorized for all 
rice. 

14 Proposals of this character had been coming up with greater or less force 
since early summer, some persons being desirous of making this procedure 
effective for the 1934 crop. 



n6 MARKETING AGREEMENTS 

was introduced on February i, 1935 in the House of Repre- 
sentatives; it became law on March 19. 

Meanwhile, with agreement and license practically in- 
operative in the Southern territory, the California rice 
growers were endeavoring to keep their agreement intact 
for the remainder of the marketing season for 1934 rice. 
We have already noted the fact that this agreement was 
on December 21, 1934 supplemented by a license. Such 
a measure had not been found necessary during the early 
days of the agreement since all millers had become signers 
of the marketing agreement. There was, however, the 
danger that other millers might enter the field as had 
happened in the South, or even that Southern millers 
might come into this territory and complicate the situation 
by offering to pay full schedule price without the 40 
per cent deduction still required under the California 
agreement. 

While the California agreement has been very effectively 
carried out, the economic problems have not been fully 
solved by it. 15 The "Secretary's price" for extra fancy clean 
rice at San Francisco was placed at $3.60. Under the pro- 
vision of the agreement which permitted the millers' com- 
mittee to set the trade price as much as 5 per cent above 
or below the Secretary's price, this committee set its 
base price at 105 per cent of $3.60 — at $3.78. At this level 
marketings were not sufficiently rapid to permit of getting 
carry-overs down to the desired point. On the other hand, 
it permitted the entrance of some duty-free rice from the 
Philippines. Both millers' and producers' committees were 
considering the lowering of this price when, on October 
15, the basic minimum prices were advanced in both the 
Southern and the California areas. Southern rice was 

15 With the control program reducing acreage about 3 per cent in 1934. 



RICE MARKETING AGREEMENTS 117 

advanced, some varieties by 15 and some by 20 cents per 
barrel, and the San Francisco clean rice price was moved 
up from $3.60 to $3.95. Since the California trade price 
could not fall more than 5 per cent below this rate, it had 
to be maintained at $3.7525. Hence, in December, the 
parties to the California rice agreement sought an amend- 
ment permitting the payment for over-quota rice of not 
more than 100 per cent or less than 10 per cent of the 
base price for the purpose of diverting such surplus rice 
into "non-routine" channels — chiefly for use as brewers' 
rice, feed for livestock, or for relief purposes. This amend- 
ment was approved by the Secretary and made effective 
on February 13, 1935. 

While there is every reason to suppose that the California 
rice industry could have continued to operate harmoniously 
and effectively under the marketing agreement, it was 
equally possible and perhaps simpler for them to secure 
production control by the processing tax method. This of 
course does not provide any machinery for dealing with 
marketing problems, but the small number of millers and 
the existence of a dominant co-operative influence made it 
possible for them to handle such matters without the sup- 
port of a federal agreement. The California interests 
therefore were quite ready to go along with the move to 
change to the processing tax and benefit payment system. 
This was regarded as necessary in the Southern territory 
owing to the difficulty of getting a less organized and more 
widely scattered region united in support of a market ad- 
justment plan. V/hile it is to be presumed that the process- 
ing tax method will be more simple and effective as a pro- 
duction control measure, it seems unfortunate that the 
effort toward improving marketing conditions has thus 
been abandoned after one year's trial. 



n8 MARKETING AGREEMENTS 

As stated in the introduction to this chapter, the objective 
of the rice marketing agreements was to provide a means 
for liquidating the abnormally large carry-over of rice and 
at the same time provide assurance that the acreage would 
be somewhat reduced or at least not again expanded. We 
have noted that the latter of these objectives was attained to 
a considerable extent under the agreement and has now 
been provided for under the stronger machinery of the 
processing tax procedure. In spite of high yields in the 
Southern territory which somewhat offset the acreage re- 
duction, the first objective — liquidating carry-over stocks — 
was accomplished to a considerable degree. The carry-over 
of rough and milled rice in the Southern states was 77 mil- 
lion pounds on August 1, 1935 as compared with 187 mil- 
lion the previous year and 221 million pounds in 1932. 
However, the feasibility of attempting to maintain a high 
domestic price on an export commodity of which our pro- 
duction amounts to only an insignificant percentage of 
world production is yet to be tested. 



CHAPTER VII 

LIMITATION AND PRORATION OF 
PERISHABLE SHIPMENTS 

We turn now from marketing agreements covering 
commodities designated as "basic" in the Adjustment Act 
to those not so enumerated. This group has been known 
as "special" crops and, more recently, as "general" crops. 
Since processing taxes and benefit payments were not 
made applicable to them, any price enhancement would 
have to be brought about through marketing agreements 
alone. 

In Chapter I we referred to the fact that it was the 
activity of representatives of these "special crop" interests 
that was responsible in considerable measure for the addi- 
tion of the marketing agreement and licensing provisions 
to the act as originally drafted. After the measure was 
put in force, these interests displayed early and persistent 
activity in promoting the use of marketing agreements 
for the benefit of their industries. Nine agreements relat- 
ing to general crops were made effective before the end of 
1933 with 20 in 1934 (besides one license without a parallel 
agreement), and 5 between then and July 21, 1935. 
Among these agreements there are groups so nearly 
identical in character that we shall be able to secure a 
comprehensive view of the undertaking and of all the 
distinctive devices employed by discussing a limited 
number of typical agreements under three general types. 

The first group — dealt with in the present chapter — is 
characterized chiefly by temporary withholding of ship- 
ments, exclusion of low-grade product, the setting of total 

119 



120 MARKETING AGREEMENTS 

or period limitations to volume of shipments, and the 
allotment of quotas out of these totals. 

SOUTHEASTERN WATERMELONS AND FLORIDA 
STRAWBERRIES 

Simplest among agreements of the several types being 
considered with reference to special crops are those which 
provide (i) for limitation of shipments on a quality basis 
or (2) for withholding all shipments during some specified 
period. There are two such withholding agreements, one 
covering Florida strawberries, and the other the water- 
melon industry in the Southeastern states. Both these 
commodities are extremely perishable in character and 
subject to sharply fluctuating market demands. The 
occurrence of unseasonable weather at important consum- 
ing centers or other circumstances may cause a sharp fall 
in demand. If supplies are not correspondingly and 
promptly curtailed, they accumulate in dealers' hands and 
prices fall disastrously. The federal government has for 
some years sought to lessen this difficulty by developing 
a comprehensive market news service, designed to give 
shippers continuous telegraphic information as to market 
conditions and prices being realized. Various distribu- 
tors' organizations and co-operative associations of grow- 
ers have likewise sought to effect better supply and 
demand adjustment through more comprehensive and 
centralized schemes of market organization. The mar- 
keting agreement section of the Agricultural Adjustment 
Act, however, furnished a new implement for such en- 
deavors, and it was rather promptly seized upon by both 
growers and shippers, who felt assured .that such under- 
takings might now be increased injsffectiveness. Mar- 
keting agreements supplemented by licenses promised to 



PERISHABLE SHIPMENTS 121 

make it possible to bring all shippers of a commodity 
into concerted action without fear of penalty under anti- 
trust laws. 

The agreement for the watermelon industry of the 
Southeast covers shipping territories in Florida, Georgia, 
and South and North Carolina. This agreement was 
worked out by various growers, the Melon Distributors' 
Association, and the Sowega Melon Growers' Co-operative 
Association during the early summer of 1934 and was 
approved by the Secretary of Agriculture on August 6, 
becoming effective on August 10. It set up a control com- 
mittee of eleven, five of whom are representative of ship- 
pers, Rvc of growers, and one of the above-mentioned co- 
operative association. Whenever this control committee 
considers it advisable to limit shipments of watermelons, 
it may impose a restriction in either one of two forms. 
First, it may prohibit the shipping of any watermelons of 
a grade or grades other than United States Grade i. 1 Such 
an order may be resorted to if it appears that there is a gen- 
eral excess of production which promises a somewhat con- 
tinuous depressing of the market to unremunerative levels. 
If, however, the difficulty is of a more temporary and acute 
character, due to unfavorable consuming conditions at 
the market or to weather conditions in the growing ter- 
ritory, the control committee may meet the situation by 
declaring a "shipping holiday" of such duration as it 
thinks necessary, not exceeding 48 consecutive hours. 
Such embargoes may not be declared at intervals less than 
Rye days apart. If an order of either of these kinds is to 

1 In order to protect the grower whose crop is largely of inferior quality 
the license provides that upon his showing that he would be harmed by this 
type of restriction, the control committee shall exempt him from the operation 
of the order to the extent necessary to permit him to ship the same percentage 
of his total production as is allowed to other shippers. 



122 MARKETING AGREEMENTS 

be issued, the control committee must give not less than 
36 hours' notice to shippers and growers. Copies of the 
order are sent to the Secretary of Agriculture, who may 
cancel or modify it in any manner he deems fit. 

Besides the control committee, there is an advisory 
committee for each of the four states of the Southeastern 
area. These advisory committees consist of eight mem- 
bers, four selected by the shippers and four by the grow- 
ers. They are responsible for supplying the control com- 
mittee with data covering growing, shipping, and market- 
ing conditions in their respective states, particularly with 
regard to the quantities, grades, and sizes of melons 
available for shipment from time to time during the ship- 
ping season. 2 To make the terms of the agreement binding 
upon all distributors, the licensing of shippers was re- 
quested in Article X of the marketing agreement, and a 
license was made effective on August 20. 

The watermelon agreement was proposed in May, when 
prospects pointed to a heavy crop. Owing to weather 
conditions and disease, the crop was reduced to moderate 
proportions and returns to growers were on the whole 
satisfactory. Hence no haste was felt about getting the 
agreement into effect, and its provisions for the suspen- 
sion of shipments were not called into play during the 
1934 shipping season. The higher prices received by 
growers for the crop of 1934 led to an expansion of acreage 
in 1935 and as early as February 1935 a series of local meet- 
ings was begun with a view to informing producers as to 
the terms of the agreement and taking steps to put it in 
operation. 

2 Sec. 4 (3) of the agreement provides also that the control committee 
"shall obtain the recommendations, if any, of each such [advisory] committee 
as to the necessity for, and the scope and duration of;, limitations on shipments 
during such limitation period." 



PERISHABLE SHIPMENTS 123 

The control committee at its organization meeting on 
May 6 adopted a resolution excluding all melons below 
United States Grades 1 and 2 for the entire season. 
Weather conditions advanced the ripening period about 
ten days, and shipments from Florida began on May 13. 
For the remainder of that month and all of June, tempera- 
tures in the consuming markets of the North ranged be- 
low seasonal normals and the problem of maintaining a 
market proved serious. Heavy loadings from Georgia be- 
gan on Monday, June 10, when there were about 150 cars, 
or practically double the amount expected. Buyers were 
found for less than one-third of the loaded cars, and a call 
was issued for a meeting of the control committee to con- 
sider what action should be taken. As a result a shipping 
holiday of 48 hours was called for the following Thursday 
and Friday and immediately announced by wire and radio. 

Loadings just before and just after this holiday were 
extremely heavy, so that it is doubtful whether any con- 
siderable quantity of melons was actually withheld from 
market. Prices did not rise, but there was a feeling that 
the holiday had prevented a severe break in the market 
that would otherwise have occurred. The field represen- 
tative of the AAA reported: " Much of the favorable 
effect of this holiday was due to the e st aplishment in the 
minds of those concerned of a belief t hat the co ntrol com- 
mittee would take whatever action might be necessarfTo 
protect thewa ^rmHc^'marto /^ 

As cool weather continued, the control committee on 
June 15 ordered limitation of shipments of watermelons to 
United States Grade 1 for a period of 13 days, beginning 
June 18. Owing to the prevailing high quality of melons 

3 H. B. Davis, Special Report on the Operation of the Marketing Agreement 
of the Watermelon Industry in the Southeastern States. The writer has 
drawn upon this report for numerous other details of the discussion. 



i2 4 MARKETING AGREEMENTS 

being produced, this restriction did not effect a large re- 
duction in quantity. Track holdings in the terminal mar- 
kets mounted, and on June 26 the committee ordered 
another 48-hour suspension of shipments, covering June 
28 and 29. Inasmuch as this shipping holiday was fol- 
lowed by a Sunday, there was a virtual three-day suspen- 
sion of shipments. There had been an advance in price of 
$25 a car after the announcement of the shipping holiday 
and prices continued to gain during the week which fol- 
lowed. Thereafter there ensued a period of some ten days 
of heavy rains which greatly curtailed the crop and no 
further suspension of shipments was ordered. 

As the shipping season moved into North Carolina, de- 
mands were made from this section for a prohibition of 
shipments of melons below United States Grade 1. After 
deferring action on this request for four days, the com- 
mittee on July 17 ordered such a restriction to be effective 
from July 20 to July 27. On August 3, it ordered dis- 
continuance of all regulations as of August 15. 

Growers regarded the results of this agreement as dis- 
tinctly satisfactory. The exclusion of cull melons and 
restriction of shipments of Grade 2 improved the aver- 
age quality of shipments and this was regarded as having 
a favorable effect on prices, whereas the shipping holidays 
were thought to have had a steadying effect on prices. It 
is expected that this agreement will be put in operation 
again next year if there are prospects of a large crop. 

The Florida strawberry marketing agreement follows 
the same general line as that of the watermelon industry 
in the Southeastern states. Under the terms of the straw- 
berry agreement a control committee may, 4 whenever it 

4 Consisting of one member designated by each "shipper and affiliates, sub- 
sidiaries, agents, and representatives who shipped in the aggregate at least 
300 carloads of strawberries" during the preceding season; one designated by 



PERISHABLE SHIPMENTS 125 

deems that prevailing marketing conditions make it advis- 
able to limit shipments of strawberries, issue an order pro- 
hibiting licensees from shipping out of the state any straw- 
berries of a grade other than the grade or grades specified 
in the order or of a size smaller than specified. Shippers 
must be given 48 hours' notice of such an order, and 
copies must be promptly mailed to the Secretary of 
Agriculture. No complete suspension of shipments is 
provided for. 

The strawberry marketing agreement was proposed by 
the Florida Strawberry Marketing Association, the Dover 
Shipping Association, and seven other concerns engaged 
in shipping strawberries. A public hearing was held in 
Florida on January 3, 1934 and the agreement tentatively 
approved by the Secretary on March 10. Owing to 
late setting of the plants and to subsequent dry weather, 
crop prospects were not such as to create any pressure to 
get the agreement into operation. It was, however, com- 
pleted and given final approval, to become effective on 
August 5. 

At a meeting held in October for the election of mem- 
bers to the control committee, the growers of the Plant 
City district protested against the basis of membership 
and also adopted a resolution demanding a guaranty of 
indemnities to strawberry growers for berries withheld 
from shipment. This protest was based upon the fact 
that prohibitions against the shipping of fruit below a cer- 
tain grade would, at times at least, work a hardship on 

the co-operating marketing association; one elected by majority vote of the 
shippers who individually shipped between ioo and 300 carloads during the 
preceding season; one elected by shippers who individually shipped less than 
100 carloads each; and one shipper selected by agreement between the com- 
missioner of the Florida State Marketing Bureau and the director of the 
Agricultural Extension Service of the University of Florida. 



126 MARKETING AGREEMENTS 

particular growers or on sections which had suffered 
from adverse weather conditions or from plant disease or 
pests. In defense of the provision, it has been argued that 
such inequalities as would not be adjusted by the control 
committee (see note i, page 121) would tend to average 
out. The proposed amendment has not as yet been in- 
corporated in the agreement. 

Owing to the severe frosts in December 1934, shipments 
from this territory were so moderate in 1935 as not to call 
for regulatory action. As to the future, there is some un- 
certainty as to how successfully this agreement could be 
operated. There are a considerable number of producers 
of the small-scale type dependent upon shippers or others 
who finance them in the production of their crops. There 
is a minority co-operative interest represented by several 
local shipping associations which has in some years used 
a common co-operative sales agency. With the favorable 
experience of this year in the adjacent watermelon and 
celery industries under their agreements, it seems likely 
that the Florida strawberry agreement will be put in oper- 
ation next year in the event that the crop is large. 

CALIFORNIA DECIDUOUS TREE FRUITS 

Our second type of marketing agreement for horticul- 
tural products is somewhat more elaborate than the simple 
withholding device we have been considering. The situa- 
tion giving rise to this second type of agreement is anal- 
ogous to the first in that it also relates to commodities 
of a highly perishable character produced far from the 
principal consuming markets. In view of the fact that 
demand for such products does not expand readily with 
declining prices, any considerable excess supply quickly 
gluts the market and is likely to push prices down to a 



PERISHABLE SHIPMENTS 127 

point where growers and shippers do not recoup their 
costs or, in view of the high transportation and refrigera- 
tion expense, even get back their shipping charges. 

In order to meet such situations, many efforts had, even 
before the passage of the Agricultural Adjustment Act, 
been made through private initiative, co-operative endeav- 
ors, and ultimately in three states through legislative enact- 
ment, 5 to set up some type of control which would limit 
shipments to times and places at which remunerative 
prices could be secured. Much previous experience, 6 
therefore, was embodied in the proposal submitted by 
California shippers in July 1933 for a marketing agree- 
ment covering deciduous tree fruits except apples. 7 

5 In the spring of 1933, California passed an "agricultural prorate act," 
designed to effect such results. (L. Calif., 1933, Chap. 754.) See also H. E. 
Erdman, "The California Agricultural Prorate Act," Journal of Farm Eco- 
nomics, October 1934, and C. C. Teague, "California Proration Plans for 
Fruits and Vegetables," American Co-operation, 1933, p. 35. This act was 
held unconstitutional by the lower and appellate courts in the summer of 1935. 
See p. 159. 

In August 1933 the state passed another statute known as the California 
Agricultural Adjustment Act, designed to give full legal force and effect to all 
federal marketing agreements and licenses in intrastate as well as interstate 
business and exempting them from the anti-trust and unfair competition laws 
of the state. L. Calif., 1933, Chap. 1029. 

In December 1933 the state of Washington passed an essentially similar 
measure (L. Wash., 1933-34, Chap. 12, extraordinary session). While this 
act was designed primarily to complement the marketing agreement and 
license features of the federal act, Section 7 provided also that the director of 
agriculture was empowered "to provide for the regulation and control of pro- 
duction [as well as] storage, transportation, sale, and distribution ... for such 
time as the present economic emergency exists." 

The state of Oregon passed a somewhat similar law (L. Ore., 1933, Chap. 
37, second special session) and a prorate act similar to that of California has 
been under consideration in Arizona. 

6 An illuminating discussion of the undertaking in California may be found 
in E. A. Stokdyk, "Economic and Legal Aspects of Compulsory Proration in 
Agricultural Marketing," University of California Bulletin No. 565, December 
1933, PP. 17 ff. 

7 The commodity chiefly affected was pears, but peaches, plums and fresh 
prunes, cherries, apricots, and persimmons were also included. Apples were 



128 MARKETING AGREEMENTS 

The California deciduous agreement was one of the first 
marketing agreements to be approved by the Secretary of 
Agriculture. Negotiations were begun shortly after the 
passage of the act, a formal hearing was held on August i, 
1933, and the resulting agreement was signed by the 
Secretary on September 1, effective the following day. The 
agreement is comparatively simple in character. It sets 
up an executive committee consisting of the general 
managers, or their designated representatives, of all ship- 
pers signatory to the agreement who shipped 500 or more 
carloads of deciduous fruit during 1932, together with 
three additional members elected by signatory shippers 
who individually shipped less than 500 carloads each. 
This executive committee acts as the general supervisory 
agency and intermediary between the Secretary of Agricul- 
ture and the shippers, and it handles disputes arising in 
connection with performance of the agreement, subject to 
appeal to the Secretary. The expenses of this committee 
are assessed upon all shippers in proportion to the volume 
of business handled by each. 

For the supervision of actual prorate undertakings, the 
shippers elect a proration committee consisting of seven 
members, at least three of whom must be growers of de- 
ciduous fruits or representatives of co-operative organiza- 
tions of growers. This proration committee assembles 
data on the production and marketing conditions in the 
deciduous fruit trade and, with the advice of a sales mana- 
gers' committee, estimates the amount of any varieties of 
deciduous fruit which are available for shipment from 

later covered by a separate agreement (see p. 132). Other than deciduous 
fruits were also covered by separate agreements, such as those for Tokay grapes 
(p. 134), oranges and grapefruit (p. 149), and so forth. 



PERISHABLE SHIPMENTS 129 

the several districts during designated periods, together 
with the amount of such varieties "which it is deemed 
advisable to ship" from these districts at the designated 
times. When it appears that the total amount available 
would, if shipped, unduly depress the market, the pro- 
ration committee decides on a shipping quota for the 
whole territory during a designated period and allocates 
this to districts and shippers. Each district is given a pro 
rata share determined on the basis of the proportion which 
the total amount to be shipped bears to the total amount 
available in all districts, and the amount which each 
shipper in each district is allocated is in the same propor- 
tion. Each shipper divides his total allotment "among the 
growers from whom he accepts deciduous fruit for mar- 
keting." 8 Any shipper who ships more than the allotted 
amount during a given period must deduct double such 
overshipment from the allotment made him during the 
next succeeding period. 9 Undershipment in one period 
may be added to the prorate of the next succeeding period. 
There is also a sales managers' committee of seven. It 
is elected by the shippers and at least one of its members 

8 This procedure assumes that the proration committee has complete and 
accurate information as to all the fruit coming forward for market and puts 
the burden of withholding from market on a flat percentage basis in accord- 
ance with the productive conditions of the given year. In other marketing 
agreements (see p. 154), recognition has been given to the desire of certain 
growers that some account be taken of their vested interest in the market on 
the basis of their production in previous years. This "past performance" basis 
is analogous to the "base period" used in the contract quotas under the benefit 
payment provisions of the act. 

9 By amendment of July 22, 1934. Originally a shipper might deduct an 
overshipment during one period from his allotment for the next period, and 
the double deduction was not effective until the second succeeding period, 
when it applied to the net overshipment of the two preceding periods. This 
arrangement was discontinued because it resulted in too much confusion of 
shipping schedules and ineffective regulation during later periods. 



130 MARKETING AGREEMENTS 

must be associated with a co-operative marketing agency. 
It acts, as we have seen, in an advisory capacity to the 
proration committee. 

Each shipper is required to furnish such records and 
accounts of his operations to the sales managers' com- 
mittee and the proration committee as the executive com- 
mittee may require. If the executive committee receives 
information that any shipper is violating the terms of the 
marketing agreement, it shall investigate the case and 
call upon the shipper for a statement of the facts under 
oath. If, after due consideration, the committee believes 
the charges to be true, "it shall order such shipper to dis- 
continue such violation and in the event of non-com- 
pliance by the shipper with such order it shall report such 
non-compliance to the Secretary." 

In order to bring the whole industry under the system 
of control voluntarily accepted by the 85 per cent who 
became signers, the Secretary of Agriculture about a 
month later issued a license (effective October 9) identical 
in substance with the terms of the agreement. 

The California deciduous tree fruit agreement was not 
brought into active operation during the year 1933 because 
unfavorable growing conditions kept supplies of the 
various fruits down to manageable proportions. At the 
end of May 1934, however, the prorate committee decided 
that supplies of plums available for shipment were in 
excess of demand at reasonable prices and ordered ship- 
ments limited to 150 cars on Friday, Saturday, and Sunday, 
June 1 to 3 inclusive. During this period actual shipments 
amounted to 160 cars and it appeared that supplies would 
continue to be excessive. Hence a comprehensive scheme 
of proration was set up to continue to the end of the ship- 
ping season, but was discontinued because the committee 



PERISHABLE SHIPMENTS 131 

was unable to make satisfactory estimates of available 
supply. As to peaches, no restriction was placed upon 
bona fide f.o.b. orders or sales for cash, but no "price 
arrival" sales were permitted, and the number of "rollers" 
(that is, cars shipped unsold either on consignment or 
subject to diversion in transit) was limited to the number 
of the shippers' actual total loadings during the preceding 
24 hours. The purpose as reported in the trade press was: 

To keep the trade informed on the situation, and each man will 
have a chance to buy peaches at a stabilized price through the 
regulation and careful control of rolling cars. There will be no 
limit to the number of cars that can be bought f.o.b. for cash or on 
bona fide orders ... as handlers will be able to buy peaches f.o.b. 
as low as the next man, so that there will be no need for chiselling 
or knocking down the price to where neither receiver nor shipper 
can show reasonable profit. 10 

The regulation of shipment of Bartlett pears is an im- 
portant part of the task of the California deciduous agree- 
ment and a combination of devices has been developed for 
handling it — first, grade and size limitations, second, the 
restriction of movement from railroad concentration 
points, and finally a shipping holiday arrangement to 
facilitate the control of out-of-state movements at concen- 
tration points. In order to perfect this machinery, the 
agreement which had been in effect for nearly two years 
was superseded on July 17, 1935 by a new agreement. 
This provides not only for period-to-period proration of 
shipments and limitation of the size and grades of fruit 
which may be shipped but also day-to-day regulation of 
shipments from railroad concentration points. Under the 
latter provision cars may be held at such points for periods 
not more than four days in length with limitation of the 

10 New Yor\ Packer, June 30 and July 7, 1934. 



132 MARKETING AGREEMENTS 

number which may be released each day. If it is not 
possible to equalize the out-of-state movement of cars by 
holding within the four-day limit, the committee may in 
the case of Bartlett pears provide for a period not to exceed 
48 hours, during which no shipments may be made from 
local loading stations to the concentration points. 

Under the new deciduous fruit agreement, grower par- 
ticipation is increased. There are six commodity com- 
mittees to supervise the markets of the several fruits 
handled. These commodity committees each select from 
one to four grower members of a control committee which 
is now constituted of 13 producers and 12 shippers. The 
successful completion of these changes and inauguration 
of a new agreement seems to show considerable vitality 
on the part of this market adjustment effort and to argue 
the probable continuation of the experiment. 11 

Producers of California Gravenstein apples during 1933 
operated a prorate plan under the state law. On August 5, 
1934 Secretary Wallace approved an apple marketing 
agreement under the AAA, which, in its major features, 
is identical with the agreement for deciduous fruits. 
Owing to unfavorable weather, however, the apple crop 
was so short that no limitation and proration of shipments 
was called for in 1934. It was put in operation for a 
period of three weeks during the 1935 season. However, 
the crop was late, thus destroying the seasonal advantage 
ordinarily enjoyed by this section. Prices were so low that 
shippers did not in any week under proration come any- 
where near the quota allotted. 

No quantitative estimate of benefits under these mar- 
keting agreements is possible at this time, and analysis of 

11 For the full text of this agreement (in amended form), see Appendix A. 



PERISHABLE SHIPMENTS 133 

the possibilities and limitations of such undertakings is 
deferred to our closing chapters. 

OTHER SIMPLE PRORATION AGREEMENTS 

The vineyardists of California probably are the group 
which, with the single exception of the citrus growers, has 
had the most extensive experience in the field of industry 
stabilization. Producers of certain types of grapes have 
had a succession of consolidated organizations, either co- 
operative or proprietary in form, which run back to the 
90's. At times shippers, bankers, and — since repeal — 
wineries have joined with the growers in attempts of more 
or less temporary character to adjust supplies of table, 
juice, and raisin grapes to the demand which could be 
found at a remunerative price. 

Since 1922 there has been an almost continuous succes- 
sion of such undertakings — the Sun Maid Raisin Growers' 
Association and the California Fruit Exchange, as co- 
operatives promoting clearing-house arrangements, the 
California Vineyardists' Association, the California Fruit 
Industry, Inc., and the California Grape Control Board, 
Ltd., which was sponsored and given financial aid by the 
Federal Farm Board. 12 None of these ventures manifested 
any high degree of cohesive strength; all soon fell apart 
because of their inability to bring any measure of com- 
pulsion to bear on their members. The coming of the 
Agricultural Adjustment Act was therefore hailed as a 

12 See Annual Report of the Federal Farm Board, June 30, 1930, p. 18; the 
same, June 30, 1931, p. 59; Eric Kraemer and H. E. Erdman, "History of 
Co-operation in the Marketing of California Fresh Deciduous Fruits," Univer- 
sity of California Bulletin No. 557, p. 95; E. A. Stokdyk, "Marketing Tokay 
Grapes," University of California Bulletin No. 558, p. 45; Leo Monihan, 
"Organization and Operation of the California Vineyardists' Association," 
American Co-operation, 1928, Vol. I, p. 207. 



i 3 4 MARKETING AGREEMENTS 

remedy for this defect in previous efforts toward an inte- 
grated marketing plan. 

Producers and shippers of Tokay grapes had had an 
informal working agreement in 1932 and, with the passage 
of the Adjustment Act, proceeded to revise and perfect it 
into a proposed agreement which they brought forward 
for the approval of the Secretary of Agriculture. With 
less than the usual delay due to necessary routine, final 
approval was given and the agreement made effective 
September 30, 1933 (license effective October 14). When 
this agreement went into effect, the shipping season was 
already at its height and prices had declined to a point 
where they returned the grower little more than harvest- 
ing, packing, and selling costs. As soon as this agree- 
ment became operative prices began to improve, 13 and at 
the end of the season officials of the AAA estimated that 
grape producers had received, on the average, approxi- 
mately $1.22 a package as compared with $1.11 in 1932. 
They estimated that it cost approximately $1.00 per crate 
for harvesting, transportation, and selling charges, and 
that net return to the growers therefore was double what 
it had been in 1932. This was in part due to the resump- 
tion of wine making in California, which provided a very 
satisfactory outlet for grapes not shipped for table use, and 

13 "The agreement immediately checked the decline as soon as it became 
effective. Both f.o.b. and delivered prices strengthened within a few days to 
the extent of at least 15 cents a crate. The outstanding effect of the control 
was the definitely stabilized market. There were no bad breaks in 1933, none 
of the auction averages dropped below the costs of harvesting, transportation 
and selling. In 1932, averages had dropped below slightly higher fixed charges 
on 20 days. The f.o.b. demand was better in 1933 than in 1932 and a much 
higher price relative to the delivered auction price. Total shipments in 1933 
slightly exceeded those of 1932. The growers and shippers estimate that the 
control saved the Tokay industry at least $500,000." Robert C. Butner, 
Special Crops Division, AAA, address to National League of Commission 
Merchants, Washington, D. C, Feb. 20, 1934. 



PERISHABLE SHIPMENTS 135 

to rains during the latter part of the season, which cur- 
tailed shipments to Eastern markets. However, it was 
felt that the agreement had also been of service in enabling 
growers to take advantage of these conditions, and its 
results were regarded as so satisfactory by grape interests 14 
that it was continued in force. 15 The crop of 1934, how- 
ever, was so much reduced that no proration was put into 
effect. During the two peak weeks of the movement, 
growers were desirous of prorating shipments but the 
shippers blocked such action. Strong sentiment has de- 
veloped in favor of terminating the old agreement and 

14 Shippers of table grapes in other sections than California also manifested 
considerable interest in the possibility of using marketing agreements. A hear- 
ing was held on Aug. 14, 1934 on the proposed marketing agreement for 
shippers and producers of fresh grapes grown in Arkansas and Missouri (the 
Ozark district). It provided for the limitation and proration of shipments 
when deemed advisable by the control committee and even the complete sus- 
pension of shipments when markets became too seriously glutted. This pro- 
posed agreement, however, was never completed and approved. 

Michigan shippers and producers also brought an agreement to the formal 
hearing stage but failed to complete it. It provided for proration of ship- 
ments and this might, in the judgment of the control committee, be accom- 
panied by the setting of schedules of minimum prices. 

There was also a rather elaborate proposal for shippers and vintners of wine 
grapes grown in California which came to formal hearing on Sept. 10, 1934. 
It was designed to limit shipments of wine grapes outside the state, to set up a 
schedule of minimum prices for grapes purchased for manufacture within the 
state, and to prohibit the use of sugar (other than grape sugar) or other adult- 
erant or substitute in the making of wine, grape must, concentrate, or grape 
brandy. Vintners and shippers were to make payments on all purchases or 
shipments in an amount per ton specified by the control committee, these 
payments to be carried into a surplus control fund. This was to be used to 
reimburse growers for surplus grapes which could not be disposed of under 
such limitation of shipments and minimum price schedules as might be set up. 

15 One company covered by the Tokay grape marketing license refused to 
furnish to the proration committee the information required as to shipment 
of grapes, thus making it difficult to make the proper allocation of the 
grapes which could be shipped. This company also shipped large quantities 
of fresh grapes for which it had received no allocation, and failed to abide 
by the terms and conditions of the license. As a result, the Secretary of 
Agriculture, on April 28, revoked its license. 



136 MARKETING AGREEMENTS 

not attempting any further market adjustment operations 
until a new agreement can be secured in which growers 
would have a majority voice on the control committee. 

Other agreements of this same general type were 
effected by the handlers of fresh asparagus grown in 
California, 16 the Florida celery industry, 17 shippers of 
Southeastern potatoes, 18 shippers of fresh lettuce, peas, and 
cauliflower grown in western Washington, 19 shippers and 
producers of Colorado peaches, 20 and shippers of fresh peas 
and cauliflower grown in Colorado. 21 

The fresh asparagus agreement, designed as part of a co- 
ordinated plan which included a license for the asparagus 
canning industry, functioned effectively up to the 
date when the packing season was permitted to open 
under the terms of the canners' license. Thereafter, pack- 
ers demanded delivery for canning even though the aspara- 
gus could have been sold in the fresh market to the finan- 
cial advantage of the growers. This was in part due to 
unexpected growing conditions. In order to remedy this 
difficulty and also to take advantage of other phases of the 
experience of 1934, new marketing agreements for both 

16 Agreement effective Mar. 17 and license Mar. 20, 1934. 

17 Agreement effective Apr. 28 and license May 1, 1934. 

18 Agreement effective July 13 and license July 14, 1934. 

19 Agreement and license both effective July 21, 1934. 

20 Agreement effective No. 6, 1934. No license. There was also a simi- 
lar prorate agreement proposed for the Georgia fresh peach industry. Hearings 
on this agreement were held at Macon, Ga. on May 8, 1934 and considerable 
opposition to the plan appeared. Some of the growers wished to have the 
limitation of shipments put entirely on a grade or size basis. Some thought 
it should be a flat percentage, and some believed that instead of merely with- 
holding shipments, a certain proportion of the tree should be completely 
stripped before the fruit came to marketable condition. There were also 
questions as to the co-ordination of the Georgia proposal with some plan for 
other early peach areas, notably, those of the Carolinas and Tennessee. Even- 
tually, the Georgia proposal was dropped entirely. 

21 Agreement and license both effective Jan. 15, 1935. 



PERISHABLE SHIPMENTS 137 

fresh asparagus and canning asparagus were put in effect 
on April 3, 1935. The fresh asparagus agreement prora- 
tion is provided under two alternative methods — one on a 
volume basis and the other on the basis of acreage. In case 
the proration committee decides to use the acreage plan 
of proration, it may combine with it a control of car 
movement from concentration points similar to that em- 
ployed under the deciduous tree fruit agreement. This 
would enable it to equalize out-of-state shipments in case 
weather conditions brought short periods of excessive har- 
vesting. The co-ordination of this agreement with the 
canning asparagus agreement is discussed on page 177. 
The Florida celery agreement departed somewhat from 
previous arrangements 22 by giving larger participation 
on the control committee to growers' representatives. 
There were eight growers' representatives, matching the 
eight shippers' representatives. In spite of the fact that 
some 750 acres of celery had been plowed up during the 
1933 marketing season in order to support prices, some 
opposition to the proposed AAA agreement developed. 
This was based largely on the absence of any similar con- 
trol in other celery producing sections and on the highly 
competitive relationship between celery and other winter 
fresh vegetables. It was also asserted that no emergency 
existed inasmuch as the marketing situation was "equal to 
or better than the period 1909 to 1914, which period is re- 
ferred to in the Agricultural Adjustment Act as a basic 
period for adjusting prices." By the time the agreement 

22 Exceptions were ripe olives and asparagus. Marketing agreements made 
since the celery agreement have continued this practice of giving growers equal 
representation with shippers on control committees. Even in the earlier agree- 
ments, there was of course a considerable amount of grower representation 
involved in the inclusion of co-operative organizations among the shipper 
representatives. This issue will be discussed in some detail in Chap. XI. 



138 MARKETING AGREEMENTS 

had received the Secretary's approval, the shipping season 
was nearing its close and no proration was undertaken. 

During 1935 the agreement operated actively and suc- 
cessfully, with shipments prorated over an 11-week period. 
Some discussion of results is presented on pages 330-33. 

Growers of early potatoes, faced with an increase of 
acreage as a result of the stimulating effect of favorable 
prices in 1933, offered proposals for two marketing agree- 
ments, one covering the Southeastern early potato district, 
and the other the Southwestern district (western Florida, 
Alabama, Louisiana, Mississippi, Tennessee, Texas, 
Arkansas, and Oklahoma). The former was not finally 
approved until the shipping season was over for all except 
the northern part of the Southeastern area. It was not 
found entirely satisfactory in operation and on September 
29, 1934 some thousand potato growers from the Caro- 
linas and Virginia met at Washington, North Carolina to 
urge the necessity of a more effective program which 
should cover production control. They indicated a will- 
ingness to accept the existing marketing agreement as an 
emergency measure if it could be modified to provide for 
allotments to individual growers. But they also expressed 
an intention of pressing for the inclusion of potatoes as 
a basic commodity in the Adjustment Act. 

During the early months of 1935, the agreement for the 
Southwestern states was brought into the field of active 
consideration again and embraced also Kansas and Mis- 
souri. This latter district advanced proposals for a separate 
agreement last year but at the hearing on December 17, 
1934 joined with the other Southwestern states. Mean- 
while, representatives not only of these two sections but 
also of the late-potato sections including Maine, New Jer- 
sey, New York, Michigan, and Minnesota were stressing 



PERISHABLE SHIPMENTS 139 

the need of a national potato marketing plan and to this 
end proposed the inclusion of potatoes in the list of "basic" 
commodities and the levying of a processing tax. 
It had likewise been proposed that production should be 
controlled by a relatively heavy tax on all potatoes above 
allotted quotas after the general manner of the Kerr-Smith 
tobacco control act. A bill embodying such proposals was 
included among the amendments to the Adjustment Act 
approved August 24, 1935. There has been some sugges- 
tion that agreements excluding potatoes below No. 1 grade 
in certain areas of high production be employed this 
winter, before the new law could become effective. 

The marketing agreement covering lettuce, peas, and 
cauliflower from western Washington 23 was regarded as 
successful during the 1934 season, but actual operations 
were conducted largely under the state law rather than 
under the AAA. The proration of shipments under 
state control began about the end of May, whereas the 
federal agreement was not approved by the Secretary until 
July 21. Besides commodities covered by the AAA agree- 
ment, the state control covered tomatoes, melons, canta- 
loupes, and early potatoes. This state law was later de- 
clared unconstitutional. 

The Colorado agreement covering fresh peas and cauli- 
flower has been operating successfully during the present 
season with a degree of voluntary co-ordination between 
its operations and those of the Washington agreement. 
It was felt that southern Idaho should also be covered by 
an agreement, particularly with reference to peas, and the 
Colorado committee did in fact approach the Idaho ship- 
pers during the current season in an effort to get an in- 

23 A proposed marketing agreement for handlers of California and Arizona 
vegetables (except potatoes, onions, garlic, and asparagus) was brought to 
formal hearing on Dec. 18, 1933, but was never completed. 



i 4 o MARKETING AGREEMENTS 

formal working arrangement. No formal marketing 
agreement, however, has yet been developed. 

The Colorado peach agreement is distinctive in that it 
constitutes the one instance in which the method of open 
price posting has been actually carried into effect. The 
agreement provides: "In order to stabilize price quotations 
to producers, the control committee shall require . . . each 
shipper who intends to quote, offer for sale, or sell peaches 
[to] post his schedule of prices covering each grade, va- 
riety and size thereof with the manager." 24 If any ship- 
per desires to lower his prices, he must post a new schedule 
which, however, may not become effective until after such 
period as the control committee may designate. Upon the 
posting of such a new schedule by any shipper, the man- 
ager shall notify all shippers of the new prices and that 
they are free to sell at these quotations. This phase of the 
agreement developed out of a previous voluntary practice 
among handlers of Colorado peaches. Because of this 
background and the fact that their numbers are very small 
and the district compact, the enforcement of such an 
agreement is practicable in this instance, whereas it might 
encounter much more serious difficulties elsewhere (see 
pages 344-45. 

NORTHWEST DECIDUOUS TREE FRUIT 

The marketing agreements which we have been discuss- 
ing thus far in this chapter have had no price-control pro- 
visions. Instead of naming a minimum price and abiding 
by the decision of the market as to what volume of sup- 
plies would be absorbed at or above that level, these 
agreements have selected volume of shipments as the 
factor to be brought under control as the means of bring- 

24 An officer appointed by the control committee to assist in carrying out 
the agreement. 



PERISHABLE SHIPMENTS 141 

ing about a desirable price level. We turn now, however, 
to an agreement which, as an alternative for use of the 
proration devices, also provided for the naming of mini- 
mum prices below which sales would not be permitted. 
This is the marketing agreement for Northwest fresh 
deciduous tree fruit. 

The area covered by the Northwest fruit agreement em- 
braces nine districts in the four states Washington, Oregon, 
Idaho, and Montana. Their fruit industries had been so 
hard hit during the 1931 and 1932 marketing season as to 
be on the verge of bankruptcy 25 and threatening to 
involve various financial agencies which had extended 
credit to them. Early in 1933, therefore, a move was 

25 "This distressed condition naturally led to widespread discontent among 
growers, and a rapid development of unfair and unsound practices in connec- 
tion with the marketing of fruit. These continued up until the time the 
agreement went into effect. ,A determined effort is now being made to put a 
stop to all unfair or demoralizing practices, some of which have threatened to 
wreck the industry. 

"For example, during the past year or two, hundreds of thousands of boxes 
of apples have been exported to European receivers for guaranteed consign- 
ment advance, frequently as low as 25 cents a box. It costs about 75 cents 
per box to put the fruit aboard the cars. The growers who supplied this fruit 
were told by the brokers and agents representing European firms that they 
would get as much more than their guaranteed advance as the fruit netted, 
but the receivers apparently made very little effort to sell it at a price higher 
than would return the advances, and the growers in practically every instance 
received nothing additional. The consigned fruit came in competition with 
fruit that had been sold outright for cash, for several times the guaranteed 
advances, with the result that the outright buyers were visited with tremendous 
losses, and vowed that they would never again put up their money for an 
industry that penalized buyers instead of protecting them. The situation at 
the beginning of this season was very critical, and it appeared almost certain 
that there would be no foreign buying, and that the export business, upon 
which the Northwest apple industry is absolutely dependent, would have to 
be conducted upon an open consignment basis. The marketing agreement met 
this issue by shipment control and after the European trade became convinced 
that the agreement would be enforced, the situation changed, and there has 
been a heavy trade on an outright sale basis." Robert C. Butner, address to 
the National League of Commission Merchants, Washington, D. C, Feb. 20, 
1934. 



142 MARKETING AGREEMENTS 

started, largely under the influence of the federal credit 
agencies of the Portland district, to insure better condi- 
tions during 1933 by developing some form of centralized 
control of shipments which would hold out some hope of 
less destructive competition in 1933. The result of this 
effort was the formation of the Northwest Fruit Industries, 
Inc. (popularly known as NFI), representing approxi- 
mately three-fourths of the shipping interests. Upon the 
signing of the Agricultural Adjustment Act, this group 
moved vigorously to take advantage of its facilities through 
the setting up of a marketing agreement which would 
become operative for the 1933 season. After some un- 
avoidable delay, such an agreement secured the final 
approval of the Secretary of Agriculture on October 13, to 
become effective the following day. While it had the sup- 
port of the necessary majority of the interests involved, 
elements of opposition were clearly discernible. All ship- 
pers were brought under the terms of an accompanying 
license which became effective on October 28.^ 

The Northwest deciduous tree fruit agreement is some- 
what more complicated in its administrative provisions 
than any which we have previously considered, owing to 

26 A considerable phase of the activity under the deciduous tree fruit agree- 
ment related to Bosc or winter pears of the district. There is also an early 
pear industry, both in the Northwest and in California, which ships fresh pears 
for table use and also supplies the local canning industry. Proposed agreements 
were prepared for both Pacific Northwest Bartlett and California Bartlett pears 
in 1934. Both included a "Pacific Coast stabilization plan," designed to co- 
ordinate the whole early pear industry. The two agreements had identical 
provisions for the establishment of shipping and canning quotas and the pro- 
ration of that part of the "available tonnage" which the control committee 
should designate as "salable tonnage." It was not possible to secure agree- 
ment on the complicated details of these proposals during the 1934 season, but 
in much simplified form they have been brought up for consideration for 
1935. Further reference to these agreements will be made in the following 
chapter (p. 164) in connection with co-ordination schemes. See also note on 
p. 290 for demand of canners to be excluded from the amended act. 



PERISHABLE SHIPMENTS 143 

the character of the commodities covered, the numerous 
scattered districts involved, and the greater variety of the 
price-stabilizing devices employed. First there is a general 
control committee selected on a district basis similar to 
those with which we have already become familiar. This 
committee may in turn set up commodity committees "for 
apples, pears, prunes and cherries, and for such other fruits 
as the control committee may from time to time deem 
desirable." At least half the members of these commodity 
committees must be growers who are chosen from nomi- 
nees named by the growers in each district in proportion 
to the tonnage of fruit shipped by the district. The con- 
trol committee is further empowered to appoint an auc- 
tion committee for each kind of fruit handled in an 
auction market and a terminal committee at the auction 
market to assist the control committee and any commodity 
committee in carrying out the auction prorates, which are 
a distinctive though largely inoperative feature of the 
Northwest tree fruit agreement. 

Of the control devices employed in this "three-way" 
agreement, the first is the ordinary proration of fruit 
shipped unsold from the producing territory. It is similar 
to the simple prorate agreements which we have already 
discussed. Second, commodity committees may from 
time to time Rx minimum prices at which their respective 
fruits may be sold to handlers f.o.b. the local shipping 
points. Such proposed prices must be agreed upon by 
at least two-thirds of the membership of the commodity 
committee by a recorded vote, must then be approved by 
the control committee, and must be published. They 
become effective only after some interval designated by the 
committee, and are subject to the disapproval of the Secre- 
tary of Agriculture. 



i 4 4 MARKETING AGREEMENTS 

The third control method provided in the Northwest 
tree fruit agreement (Article VII) relates to the control of 
auction sales. When any commodity committee decides 
that it is desirable "to attempt to control or regulate the 
auction marketing of its fruit," it becomes the duty of the 
auction committee to determine the total quantity of the 
given fruit to be sold in each auction market designated 
by the control committee and to assign a quota of this 
fruit to each handler equitably "in proportion to the 
amount of fruit each intends to sell in the respective auc- 
tion markets during the control period.' , 

The terminal committee, like the auction committee, is 
"composed of such handlers and such other persons as the 
control committee may designate." The function of the 
terminal committee is to regulate as far as possible the 
number of carloads of the particular species of fruit which 
shall be offered in its auction market from day to day 
during the control period, so that supplies may be adjusted 
to demand in as orderly a manner as possible. Handlers 
must abide by the rulings of the terminal committee in 
offering such fruit as is allotted to them. 

The knowledge that this agreement was in the process 
of formation appeared to exercise a steadying effect on the 
market for pears, apples, and the minor fruits involved, 
even before it had actually come into effect. Thereafter 
no genuine proration was undertaken. What was done 
in the direction of limiting supplies was to regulate the 
shipment of C-grade apples, No. 2 prunes, and certain 
sizes of Bosc pears. Minimum prices were named by the 
commodity committees for prunes, apples, and pears. 
Auction control was undertaken only for pears. 

For some weeks the agreement worked reasonably well. 
The administrative difficulties, however, were very serious 



PERISHABLE SHIPMENTS 145 

in view of the non-co-operative attitude of many of the 
licensees, the wide spread of the territory, and the necessity 
of getting the approval of members of the control com- 
mittee by telegram on questions about which they could 
be only rather remotely informed. Committees which 
named minimum prices frequently did nothing to see that 
these prices were observed or that the AAA enforcement 
machinery was brought into operation. The "recalcitrant 
minority" of shippers were assiduous in their tactics of 
evasion of all shipment control measures. 27 Some of the 
members of the control committee themselves failed to 
observe the terms of the agreement, and there were sharp 
differences of opinion within the committee as to the 
course of action to be followed. 

The result was that, from early in 1934 forward, the 
effectiveness of the agreement rapidly waned, and by June 
there was strong sentiment for its abandonment. 28 On 
the other hand, it was quite generally admitted that prices 
received for fruit had advanced about 35 cents per package 
as compared with the previous year. Since total shipments 
amounted to approximately 30 million packages, this 
meant an improvement of income of some 10 million 

27 On Jan. 25, 1934 officials of the AAA issued an order against four 
alleged violators of the agreement, who were charged with selling apples at 
prices below minima set by the commodity committee, to show cause why their 
licenses should not be suspended or revoked. It was also claimed that one of 
these firms failed to make reports on quantities handled and prices paid and had 
refused to allow representatives of the Secretary of Agriculture to examine its 
books and records as stipulated in the license. On May 3 a hearing was held in 
connection with another violation, and on November 17 on five more. On 
April 12 orders were issued suspending the license of three of these violators 
for a period of six months. The suspension order, however, was to be stayed 
on the condition that the dealers would in future adhere to the terms and 
conditions of the license. 

28 In fact, the control committee, meeting in Yakima on June 7, voted to 
recommend its cancellation and the drafting of separate agreements for such 
branches of the industry as desired them. 



146 MARKETING AGREEMENTS 

dollars for the district. 29 While undoubtedly this improve- 
ment had been due in part to the re-opening of the export 
market after dollar devaluation and to other factors in the 
general economic situation, the majority sentiment leaned 
to the view that the marketing agreement constituted a 
distinctly helpful device. It was therefore decided to con- 
tinue the agreement in the 1934 season, with certain pro- 
posed amendments. These would eliminate proration and 
place chief reliance on the wide dissemination of daily 
reports as to shipments and prices based on the United 
States Bureau of Agricultural Economics Market News 
Service. They would also change the method of selection 
of the control committee. It was originally provided that 
25 members of this committee should be selected by the 
NFI and additional members elected by the "independ- 
ents" to a number which bore the same proportion to 25 
as the tonnage of fruit shipped by these independents 
during the preceding season bore to the volume shipped by 
members of the NFI. The proposed amendment provides 
that all members of the control committee be selected by 
districts at a general election in which all licensees cast 
votes in proportion to the volume of tonnage handled by 
each. 

By January 1935, however, there was a virtual break- 
down in the Northwest deciduous tree fruit agreement. 
It has not operated in any effective way on crops of 
the 1934 season and prospects are that it will be terminated 
in the near future before the heavy fall and winter move- 
ment of crop takes place. It is possible that in that 
event a separate new agreement may be drawn up next 
year covering shipments of fresh prunes. 

29 Paul A. Sherer, statement before the Agricultural Council of the Pacific 
Northwest Advisory Board, American Agricultural Service Division, Proceed- 
ings of the Twenty-Seventh Regular Meeting, Mar. 22-23, 1934, pp. 50-52. 



PERISHABLE SHIPMENTS 147 

In this chapter and those immediately following, only 
casual reference is made to control or reform of market- 
ing practices such as handling charges, grading and in- 
spection, and the like. In the interest of simplicity and 
clarity of treatment discussion of these matters will be 
deferred until Chapter XIII, where we can take a com- 
parative view of such provisions in all groups of market- 
ing agreements. 



CHAPTER VIII 

CITRUS MARKETING AGREEMENTS AND 
NATIONAL STABILIZATION PLANS 

In connection with our discussion of fluid milk, rice, 
tobacco, and several horticultural products, we have already 
had occasion to refer to co-ordinated distribution programs 
and common price objectives of geographically separated 
areas producing the same commodity. We have, however, 
reserved any extended discussion of the matter for the 
present chapter because of the fact that the citrus industry 
is the one in which plans for inter-regional stabilization 
have been most fully worked out and have indeed achieved 
the magnitude of a "national stabilization plan." The 
experience of the citrus fruit industry, which we shall 
present in this chapter, will serve to illustrate most of the 
significant aspects and difficulties of inter-regional stabiliza- 
tion plans in general. To this as a framework, we shall 
add such supplementary comments as seem necessary to 
bring out the additional or divergent features of co- 
ordination plans for other commodities. 

A marketing agreement "for oranges and grapefruit 
grown in the states of California and Arizona" and another 
"for citrus fruits * grown in the state of Florida" became 
effective on December 14, 1933, with one "for oranges and 
grapefruit grown in the state of Texas" following on 
December 26 (all accompanied by licenses), and one "for 
citrus fruit grown in the Island of Puerto Rico" tentatively 
approved on October 5, 1934. Inasmuch as all these agree- 

1 That is, oranges, grapefruit, and tangerines; limes, lemons, and satsumas 
are excluded. 

I48 



CITRUS MARKETING AGREEMENTS 149 

ments follow closely the same general pattern and are of 
the proration type with which we are already familiar, 
our discussion may be brief except as it relates to the dis- 
tinctive section which sets forth the national stabilization 
plan. 

CITRUS PRORATION IN CALIFORNIA, TEXAS, AND 
FLORIDA 

With the dominant position occupied by co-operative 
associations in the California citrus industry and their long 
experience in citrus fruit marketing, it was a comparatively 
simple matter to prepare a marketing agreement for 
shippers in California and the adjacent area of Arizona. 
The agreement became effective on December 14, 1933 and 
was followed by a license effective on December 18. Instead 
of a control committee, this agreement provides for a dis- 
tribution committee and a growers' advisory committee to 
direct any proration undertakings: 

Whenever the distribution committee shall deem a proration of 
shipments advisable because of prevailing market conditions, it shall 
determine the weekly shipments of each variety of fruit grown in 
California and Arizona. For the purpose of such proration, the said 
committee may divide the markets into two areas, one area to include 
such parts of California, Arizona, and Nevada as the committee may 
determine are in such proximity to the areas of production as to 
require special treatment, and the other area to include the balance 
of the United States and Canada; and the committee may establish 
separate prorates for each such area. 

Each shipper receives from the distribution committee 
his quota of the total shipments to be made during any 
proration period. Likewise any grower producing fruit 
not controlled by a particular shipper may request a prorate 
allotment and this, as well as the shipper's allotment, is 
determined by the "growers' advisory committee." Sepa- 



150 MARKETING AGREEMENTS 

rate prorate bases are to be established for navel and 
Valencia oranges and for grapefruit. It is left to the various 
shippers to divide their allocations equitably among the 
growers whom they serve "or would reasonably be expected 
to serve if the entire crop of all growers were marketed." 

The Texas agreement (effective December 26, 1933) is 
essentially similar to the California agreement. It has a 
single control committee instead of the distribution and 
growers' advisory committees used in California. Weekly 
prorations may be made not only according to variety but 
also according to grade and size of fruit. Except in 
emergency, 36 hours' notice must be given to the industry 
through the press before instituting proration. Shippers 
receive allotments covering the fruit controlled by them 
and growers whose fruit is not thus controlled may secure 
individual prorate bases from the committee. 2 As a matter 
of convenience in adjusting current operations, all of the 
citrus agreements provide that shippers may exchange allot- 
ments but no shipper may during the total time covered by 
all the proration periods in a given year ship more fruit 
of any variety than his total allotment of that variety. 

The Florida agreement, which became effective the same 
day as the one for California, embodied proration provi- 
sions identical with those of the Texas agreement. Like 
the Texas agreement, it was placed under the administra- 
tion of a single committee. But, whereas the Texas control 
committee consisted of seven members, only one of whom 
was designated as a grower, the Florida control committee 
consisted of thirteen members, four of whom were to be 

2 By amendment effective Oct. 21, 1934 the control committee is to issue 
certificates to each grower covering the estimated number of boxes of fruit 
which he produces. Such grower certificates must be shown by the shipper as 
evidence of the volume of fruit which he controls and are the basis of the 
shipper's allotment made to him by the control committee. 



CITRUS MARKETING AGREEMENTS 151 

"growers of fruit who are in no way financially interested 
in any marketing or packing organization other than a 
co-operative, whether as a stockholder, officer, employer, 
or in any other way whatsoever." As the result of difficul- 
ties in operating the original Florida citrus marketing 
agreement during 1934, it was superseded by a new agree- 
ment tentatively approved on October 17, 1934. 3 This 
changed the basis of control committee membership to six 
shippers and seven growers. Furthermore, the new agree- 
ment specified the geographic district from which each 
grower member should be chosen and which he was re- 
garded as representing. 

This was part of a general shift in the new agreements 
toward more active grower participation, made possible 
under the amendments of April 7, 1934 to the Agricul- 
tural Adjustment Act. Unlike all previous marketing 
agreements (whose parties are the "contracting shippers 
of [the commodity] and the Secretary of Agriculture of 
the United States"), the new Florida agreement was be- 
tween growers, shippers, and the Secretary. 4 Certificates 
were issued to growers, and shippers might ship only such 
fruit as was covered by these certificates. Thus, if a ma- 
jority of growers wished a marketing agreement, they 
were put in a position to secure it even if the number of 
shippers opposed to it would have been sufficient to pre- 
vent its adoption. 

A distinctive feature of the Florida agreement was found 
in the provision which it made for proration to the auction 
markets. The reason for this provision grew out of 
Florida's special transportation situation. Even though 

3 The old agreement and license were terminated by order of the Secretary 
of Agriculture on Aug. 13, 1934. 

4 This is true also of the tentative Puerto Rico agreement. The growers' 
advisory committee in California accomplishes much the same purpose. 



i 5 2 MARKETING AGREEMENTS 

the volume of supplies as a whole is being kept in satis- 
factory adjustment to total market needs, the simultaneous 
arrival of several boatloads of fruit at a given Eastern mar- 
ket, particularly New York, may, in the absence of some 
supplementary control, result in a sharp depression of 
this market for a few days, thus exerting an adverse effect 
on all other markets whose prices are linked more or less 
closely to New York quotations. Likewise, it is felt that 
such a forcing down of prices, even for a few days, creates 
in the minds of traders a new picture of values from 
which it is difficult to effect a restoration of the previous 
price level even after the flood of supplies has receded. 

On the other hand, it is possible that if auction prorates 
were introduced without any control of total volume, sup- 
plies withheld from a limited number of market centers 
where auctions are employed would be diverted to the non- 
auction markets in disproportionate abundance, with a 
highly unsettling effect on prices. 5 Hence it was provided 
that auction prorates would be undertaken only when 
volume prorates were also in operation, except that with 
the special authorization of the Secretary they might be 
undertaken at other times. 

Both the California and the Florida agreements were 

5 "In addition, an auction prorate directly affects trade relationships, and 
cannot take into account the changeable character of such relationships. There 
is often reasonable ground for complaint on this account. A shipper, because 
of his relationship with a wholesale receiver, may have sold a large number 
of cars in Chicago last season. This year this connection may be discontinued, 
and the shipper may make similar arrangements with wholesalers in Phila- 
delphia and New York. His past performance under an auction prorate may 
permit him to make heavy shipments to Chicago and not allow him to ship 
a sufficient number of cars to New York and Philadelphia to enable him to 
carry out his agreements. It appears desirable, therefore, to use the auction 
prorate as an adjunct to a volume prorate and only in emergencies to prevent 
congestion in the larger markets." A. W. McKay, paper delivered at the 
annual meeting of the American Farm Economic Association, Chicago, Dec. 
28, 1934. 



CITRUS MARKETING AGREEMENTS 153 

put in operation promptly after their approval by the 
Secretary. Proration of shipments was begun in California 
about the middle of January and was continued con- 
sistently throughout the year. "With a few minor excep- 
tions, the California-Arizona marketing agreement was 
wholeheartedly supported by all shippers during its first 
year of operation, with the consequence that the program 
proved of material value to all growers. Not the least of 
its benefits has been the spirit of harmony and co-operation 
developed in its practical operation involving all types of 
shippers." 6 Its second year of operation was less har- 
monious and it is now proposed to develop a new agree- 
ment under the amended act. 

No proration of shipments was instituted under the 
Texas agreement until December 13, 1934 7 owing to the 
fact that a hurricane in the fall of 1933 had almost com- 
pletely destroyed the 1934 citrus crop of this area. The 
proration begun on December 13 was discontinued before 
the end of the week and not resumed until January 20, 
1935, when it was undertaken for a period of four weeks 
largely as an experiment to see how the plan would 
operate and what difficulties it would encounter. The 
results were not very satisfactory. There are a large number 
of very small shippers in this territory and, after the first 

6 Annual Report of the General Manager of the California Fruit Growers' 
Exchange, 1934, p. 8. This report also states that "all of the fruit of mer- 
chantable quality was sold during the season, the balance being utilized through 
the by-product companies or distributed to charitable and relief organizations 
so that none of the crop was wasted." 

Mr. McKay, who was in charge of citrus fruit in the Special Crops Section of 
the AAA, said (in the paper mentioned above) : "There is plenty of evidence 
that the operation of the agreements in California and Florida last season 
resulted in increased returns, aggregating several million dollars, to the growers 
of those states." 

7 The control committee had, however, prohibited the shipment of unclassi- 
fied fruit effective Oct. 28, 1934. 



154 MARKETING AGREEMENTS 

week, violations were numerous and no effective means of 
enforcement were forthcoming. With the situation com- 
plicated by litigation the agreement broke down before 
the end of the season. 

Florida began proration operations about the same time 
as California, but after a few weeks they were interrupted 
by an injunction brought in the Federal District Court on 
the grounds that the Agricultural Adjustment Act was 
unconstitutional. The Appellate Court set aside the in- 
junction and ultimately reversed the decision of the lower 
court, but it was not until the latter part of February that 
the Florida agreement could be brought back into opera- 
tion. Further interruptions came from disagreements 
among the shippers in July, and the agreement was ter- 
minated on August 13, 1934. After lengthy discussion 
and considerable friction 8 a new agreement was developed 
for the Florida citrus industry, and made effective Decem- 
ber 18. The new agreement gave seven memberships on 
the control committee to growers and six to shippers. 
Under the proration plan allotments to shippers were 
based on the quantity of fruit controlled by them in the 
current shipping season as evidenced by growers' certifi- 
cates or by their "past performance" record of fruit 
shipped, whichever figure was higher. 

Owing to the reduction of the citrus crop as a result of 
the severe freezes in December 1934, no proration of ship- 

8 The difficulties encountered in trying to get Florida citrus shippers together 
on an agreement during this period prompted the AAA to launch a flank 
attack on the problem through a move to secure direct producer support of a 
marketing plan. Under the amendments of Apr. 7, 1934 to the Adjustment 
Act it became possible to make producers parties to marketing agreements. 
In response to requests of growers, more than 15,000 copies of the tentatively 
approved marketing agreement were circulated in the state. These were 
signed by growers quite generally and promptly with the result that the 
agreement became effective on Dec. 18, 1934. 



CITRUS MARKETING AGREEMENTS 155 

ments or regulation of grades and sizes 9 was ordered 
and it was even considered advisable to remove the re- 
quirement contained in Article V of the license, providing 
that all fruit shipped from Florida by licensees be graded 
and certified in conformity with standards of the United 
States Department of Agriculture. During the suspension 
of this clause (effective February 22, 1935) the use of in- 
spection was made voluntary on the part of the shipper. 
By this time the new agreement had practically become 
a dead letter. In the session of the state legislature which 
opened on April 1, numerous bills relating to the regula- 
tion of the citrus industry were introduced, and nine such 
acts were passed. The most important provision was the 
creation of a state citrus commission. On July 15 the mar- 
keting agreement was terminated. 

NATIONAL STABILIZATION OF THE CITRUS MARKET 

"In order to co-ordinate the efforts of all shippers ship- 
ping oranges and grapefruit," all the regional marketing 
agreements included a national stabilization plan. This 
provides for a national citrus stabilization committee for 
oranges, a similar committee for grapefruit, and a national 
citrus co-ordinator. The stabilization committee for 
oranges would consist of four representatives each from 
California and Florida, and one each from Arizona, Texas, 
and Puerto Rico, whereas the stabilization committee for 
grapefruit would consist of four representatives from 
Florida, three from Texas (only one member prior to 
August 1, 1934), and one each from California, Arizona, 
and Puerto Rico. 

9 AAA Press Release No. 1595-^35. 

This agreement provided that growers whose product fell largely in ex- 
cluded grades or sizes might secure exemption from this restriction on any 
variety of fruit of which two thirds of the crop had been shipped. 



156 MARKETING AGREEMENTS 

It is left to the control committee of any state operating 
under a marketing agreement with its national stabiliza- 
tion provision to petition either of the national stabiliza- 
tion committees when, in the judgment of the state con- 
trol committee, some national co-ordination effort is called 
for. The national committee shall thereupon consider and 
decide whether market conditions with reference to the 
given commodity are such as to require a national pro- 
ration of shipments. If, upon investigation, it decides that 
there is such a need, it may, with the approval of the 
Secretary of Agriculture, "limit the quantity of each variety 
of oranges or grapefruit which may be shipped for any 
period or periods to continental United States and Canada 
in the current of interstate and foreign commerce." After 
deciding upon such a limitation of the volume of ship- 
ments, the committee shall allocate this amount among the 
several regions participating in the national stabilization 
plan. 

If the stabilization committee should be unable to agree 
upon the formula for such allocation, the issue shall be 
referred to the national citrus co-ordinator. This officer 
shall be appointed by the two national stabilization com- 
mittees with the approval of the Secretary of Agriculture, 
and it shall be his duty to attend all meetings of both na- 
tional committees and local control committees and to 
facilitate their work in every way possible. He is to act as 
representative of the Secretary and to be charged with the 
performance of any functions requested of him by either 
of the national committees. 

While the national stabilization scheme never got be- 
yond the stage of a paper plan, its purpose and the under- 
lying marketing philosophy which caused it to be in- 
cluded in these four citrus marketing agreements should 



CITRUS MARKETING AGREEMENTS 157 

be set forth if we are to get an adequate understanding of 
the whole marketing agreement undertaking. Such an 
understanding involves a bit of historical analysis of the 
co-operative movement as it has evolved among growers 
of citrus fruit. 

Co-operative effort in California dates back to the 8o's 
and the present central exchange had its inception before 
the close of the last century. As it has evolved, it has co- 
ordinated the marketing efforts of some 200 local packing 
houses through district exchanges into a federated central 
exchange which handles more than 75 per cent of the 
oranges and 90 per cent of the lemons in California. Be- 
sides this volume in the hands of the California Fruit 
Growers' Exchange, an additional 10 per cent is handled 
by another co-operative — the Mutual Orange Distributors. 
With so large a percentage of shipments under co-operative 
control, it has been possible to develop and well-nigh per- 
fect a scheme of systematized merchandising of the product 
which has given to the officers who direct the task of dis- 
tribution a continuous picture of their marketable supplies, 
the movement of the fruit along the channels which lead 
to the various markets, and the conditions in these markets. 
Through its elaborate distributive mechanism, the ex- 
change has not merely sought to direct its shipments to- 
ward the most favorable (or least unfavorable) market 
which could be found at a given time but has developed 
the philosophy that it is bad business to incur shipping or 
even harvesting charges on fruit which does not show a 
reasonable prospect of meeting with a remunerative de- 
mand after it is put on the consumer market. 

Therefore, while pressing aggressively for the expansion 
and development of every market outlet possible, the 
exchange has sought also to develop measures for the 



158 MARKETING AGREEMENTS 

protection of its shippers through the deferring or com- 
plete withholding of supplies when no demand could be 
found which would pay handling charges and some return 
at least to the more efficient growers. This led to the under- 
taking of proration operations as early as 1923. 10 Finding 
the price situation as to lemons at that time disastrous to 
its members, the exchange set up a "distribution com- 
mittee" under authority of resolutions adopted by local 
growers' associations, which represented approximately 80 
per cent of the lemon shipments handled by the central 
exchange. This distribution committee determined the 
volume of fruit to be shipped each week and prorated it in 
turn among the several shipping associations. As the 
shipping season advanced, the excessive crop and low prices 
made it impossible to produce results under this informal 
arrangement. Accordingly, a legal contract was drawn up 
and signed by associations representing over 95 per cent 
of the exchange lemon business. Since exchange shippers 
controlled about 93 per cent of the entire lemon crop, this 
made the proration agreement a practically complete ship- 
ping control. It has continued to the present time and been 
implemented by the erection of by-product plants to which 
lemons withheld from the fresh fruit market are sent for 
conversion into by-products, such as citric acid, pectin, 
lemon oil, and citrate of lime. 

In spite of the fact that the small percentage of lemon 
shippers outside this co-operative stabilization plan at times 
seriously interfered with the smooth working of its con- 
trols, the California citrus interests appeared to be content 
to leave the lemon industry on a basis of local autonomy, 
without resort to a marketing agreement under the Agri- 

10 C. C. Teague, "California Proration Plans for Fruits and Vegetables," 
American Co-operation, 1933, p. 357. 



CITRUS MARKETING AGREEMENTS 159 

cultural Adjustment Administration. 11 The degree of co- 
operative control over oranges and grapefruit, however, is 
much less, and outside competition is very keen. Whereas 
California is the only lemon-producing territory of any 
importance, Florida practically matches it as a shipper of 
oranges during several winter months and far overshadows 
it in grapefruit production. In grapefruit production, the 
Texas area has also been expanding rapidly during recent 
years and promises to rival Florida in the not distant future. 
It was evident, therefore, that if any such control of the 
orange and grapefruit market were to be brought about, 
as had already been effected in the lemon market by the 
California Fruit Growers' Exchange, joint action from all 
the producing areas would be required. 

Past progress in the organization of marketing effort in 
these other areas has by no means paralleled that of Cali- 
fornia. Co-operative effort in Florida, though by no means 
absent, has never succeeded in drawing together into a 
single integrated effort anything like so large a percentage 
of the crop as have the co-operative organizations in Cali- 
fornia. In part this is due to the fact that they have not had 
the good fortune to receive the extraordinary leadership 
which has been found in the California movement. In 
part also, their difficulties are due to, the extreme rapidity 

11 Although the voluntary lemon agreement of the California Fruit Growers' 
Exchange had operated successfully, the exchange was considerably bothered 
by the fact that those outside the agreement shipped all their lemons under the 
protection afforded by the by-product disposal plan. Since the total surplus 
had averaged 20 per cent of the crop during the past five years, it was felt that 
all growers should bear their proportionate share of the burden. Hence the 
California Fruit Growers' Exchange Board on Jan. 23, 1935, in response to 
grower demand, voted that the arrangement be broadened to include the whole 
industry under the provisions of the California Agricultural Prorate Act. 
(California Citrograph, March 1935, pp. 127-28.) This move was promptly 
attacked by the independent shippers and the Mutual Orange Distributors, with 
the result that the state prorate act was declared unconstitutional. 



i6o MARKETING AGREEMENTS 

with which acreage and production have expanded, par- 
ticularly in grapefruit groves. But a still further dif- 
ficulty has grown out of their geographical location as 
affected by recent transportation developments. 

The history of the co-operative movement in many lands 
shows that difficulties of effective organization increase in 
direct ratio to nearness of the producing territory to the 
market and ease of transportation and commercial con- 
tacts. The Florida citrus area is much closer than is Cali- 
fornia to the great consuming markets of the Northeast, 
and the development of cheap water transportation to 
Baltimore, Philadelphia, New York, and Boston during 
recent years, and particularly the growth of truck trans- 
portation, have made it easy for small growers to find sales 
outlets without maintaining a permanent connection with 
any established distributive association — co-operative or 
other. In fact, the multiplicity of cash buyers constantly 
seeking to make purchases at the groves has made it dif- 
ficult to maintain any large or effective co-operative or- 
ganization. In spite of repeated attempts, such organiza- 
tion in Florida has never covered more than 50 per cent 
of the crop and has ordinarily been at about its present 
level of 30 per cent. 

Citrus producers hoped that the Florida marketing 
agreement might be productive of beneficial results in the 
market by bringing all shipments under one unified con- 
trol. The same may be said of the Texas area. This is a 
relatively new producing territory where co-operative or- 
ganization has not acquired either great size or ripe experi- 
ence. If the regional agreements for Florida and Texas 
provide a machinery through which all shippers in the 
given territory seek to equalize their shipments as between 
the several markets and from week to week during the 



CITRUS MARKETING AGREEMENTS 



IOI 



shipping season, this should greatly lessen the inequalities 
in market flows which have resulted in gluts and short- 
ages. It would perhaps be as far as market organization 
need go with reference to shipping periods during which 
a single area is the sole or dominant source of supply or 
with reference to those markets which are solely or 
dominantly dependent on a certain producing area. 

But as for times at which and markets in which two or 
three producing areas are important competitors, it is 
highly important from the standpoint of suppliers that 
those who plan and direct shipments from one area shall 
know the rate and timing according to which other sup- 
pliers will be directing fruit to the various markets. If it 
appears that this will overload certain markets or cause 
excessive supplies at certain times, and if even the greatest 
possible amount of readjustment of distribution and timing 
does not give reasonable hope of avoiding disastrous prices 
for some part of this supply, the same logic which suggests 
proration within a given shipping territory argues for 
proration among the several alternative sources of supply 
for the markets of the nation. It was the hope of securing 
such co-ordination, co-extensive with the whole spread of 
the citrus industry in the United States, which led to the 
inclusion of the national stabilization plan in all the citrus 
marketing agreements. 

It is obvious that the devising of any formula for pro- 
rating shipments among districts is an extremely difficult 
task, since both old and new sections are involved and since 
any section may in a given year or series of years be sub- 
jected to sharp fluctuations of production as the result of 
weather conditions. Although the national stabilization 
committees held two meetings for the discussion of the 
principles which should govern their work and the con- 



162 MARKETING AGREEMENTS 

sideration of persons suitable for the post of national co- 
ordinator, no national proration was embarked upon. The 
quota which would be appropriate for Texas, already dif- 
ficult of determination because of the relatively immature 
stage of her development as a producer of citrus fruits, 
was further complicated by the hurricane of 1933. Florida's 
problem with reference to 1935 was made controversial 
by reason of the reduction of yields as a result of the freeze 
in December 1934. 

Furthermore, the difficulty of selecting a co-ordinator 
adequate to his task and satisfactory to the various in- 
terested parties is extremely great. The acuteness of the 
personal issues injected into the selection of the second 
Florida control committee, together with the fact that 
alleged ambitions to become co-ordinator were also present 
in that situation, sheds light on the difficulty not merely 
of making an initial selection of a national citrus co- 
ordinator but also of giving effect to his decisions and at- 
taining enough permanency to accomplish any significant 
result. Had the Florida and Texas agreements been put 
on a successful operating basis, it still is quite conceivable 
that even had no national proration effort been under- 
taken nor a co-ordinator appointed, the mere setting up 
of the two national stabilization committees and their oc- 
casional meeting for the discussion of problems of the 
industry as a whole might have resulted in the effecting 
of better understanding and harmony between the several 
regions, with some resultant informal co-ordination of 
merchandising effort. 12 

12 C. C. Teague, president of the California Fruit Growers' Exchange, 
after a visit to Florida during January 1935 for the purpose of studying the 
citrus situation reported to his board of directors: "The leaders have little con- 
ception of the co-operative movement as we understand it here. The industry 
is in the hands of commercial operators. There are over 150 shippers, not 



CITRUS MARKETING AGREEMENTS 163 

This is the most elaborate of the national stabilization 
schemes which have been proposed. The same general idea, 
however, is present in a majority of the other marketing 
agreements covering general crops 13 except those which 
relate to commodities whose area of production is purely 
local or sectional, such as Tokay grapes, California dates, 
ripe olives, and canning cling peaches. In the case of wal- 
nuts, one agreement covers both the major producing sec- 
tion in California and the minor section in Oregon and 
Washington under a single co-ordinated plan. The Florida 
celery agreement (Article VI, Section 4-g) authorizes the 
control committee "to negotiate and confer with represen- 
tatives of shippers of celery produced in areas outside the 
state of Florida with regard to the formulation of a mar- 
keting agreement for the proration of shipments as between 
the several areas in the United States where celery is 
grown," and to enter into such an agreement, which will 
be binding on the shippers when approved by at least 75 
per cent of the control committee and by the Secretary of 
Agriculture. The Florida strawberry agreement has an 
almost identical provision. The Gravenstein apple, Wash- 
ington vegetable, and California fresh asparagus agree- 
ments authorize the control committee to negotiate with 
representatives of other areas with reference to the formula- 
counting innumerable truck operators who buy from growers and packers. 
Their major interest is in making a profit from packing and shipping, and of 
course they sometimes make profits even when growers do not. . . . There is 
little immediate hope for effective co-operation from Florida shippers in distribu- 
tion, either among themselves or with California." California Citrograph, 
March 1935, p. 128. 

13 Likewise there was a clause in the California rice agreement providing for 
co-ordination of activities with those of the Southern rice industry, and the 
peanut agreement was industry wide, covering three producing sections from 
Virginia to Texas. In a later chapter also we shall see that the two dairy 
product agreements were national in scope, and there were traces of the inter- 
market co-ordination idea in some of the fluid milk agreements. 



164 MARKETING AGREEMENTS 

tion of a joint proration plan but do not bind the signatories 
to accept such an agreement. 14 

A similar provision was found in the potato marketing 
agreement for the Eastern states and that proposed for 
the Southwest. The extreme difficulty, however, of arriv- 
ing at a proration between sections on a basis of voluntary 
agreement may be taken as one of the reasons why potato 
interests moved for a production control measure 
of the Kerr-Smith type, where the responsibility for inter- 
regional proration is thrown upon the officials of the Ad- 
justment Administration. When proposed marketing 
agreements for canners of tomatoes, corn, and peas were 
under negotiation, difficulties in arriving at any basis of 
proration among producing regions caused the effort to 
be abandoned. 15 All in all, therefore, it seems extremely 
doubtful that any "national stabilization plan" can be real- 
ized until several years of peaceful and effective operation 
of a marketing agreement in each of the constituent terri- 
tories have been achieved. 

14 The possible ramifications of the co-ordination idea are well illustrated by 
Bartlett pears, for which there are important commercial producing areas both 
in California and the Pacific Northwest, besides minor local production else- 
where. This product may be sold in the fresh fruit market or canned for 
year-round distribution. In the latter form, it is more or less competitive with 
winter pears, which through cold storage have a long marketing season, as 
well as competing with other canned fruits. Although several attempts were 
made, no practicable plan of co-ordination to govern such a situation was 
evolved under the California and Northwest deciduous tree fruit agreements 
or between canners and the shippers of fresh fruit. 

15 There was also an elaborate plan for dry edible beans, embracing five 
marketing agreements covering all important bean-growing regions from New 
York to California. These provided for a "national co-ordinating board" of 
ten members — one grower and one dealer appointed by each regional "industry 
board." The co-ordinating board was to maintain a permanent secretariat and 
to act as a board of review as to minimum price schedules proposed by the 
several industry boards. Its action, however, was to be subject to the approval 
of the Secretary. Thus far it has proved impossible to get the various districts 
to accept the proposed agreements, and the AAA thinks it futile to attempt 
operations unless all are included. 



CHAPTER IX 

CANNING CROPS, DRIED FRUITS, AND NUTS 

In the two preceding chapters we have been discussing 
fruits and vegetables of a perishable nature, surpluses of 
which can be dealt with on the basis of brief suspensions of 
shipments or, at the most, limitation through the control 
of current marketings. In the present chapter we shall 
deal with products of a less perishable character, where 
control devices must take into account the possibility of 
holding the product in storage and perhaps carrying it 
over into the subsequent year or even longer. The differ- 
ence in the economic and technical problems involved is 
of course one of degree rather than kind, and many of 
the control procedures are similar to those with which we 
are already familiar. Marketing agreements in this field, 
however, have laid considerably more stress on the setting 
of minimum prices. Because of the storable character of 
the product it is possible to hold any surplus not salable 
at the fixed price level until conditions improve or, if 
necessary, the price policy can be readjusted. 

THE CLING PEACH CANNERS' AGREEMENT 

The second marketing agreement to be put into effect 
under the Agricultural Adjustment Act was that for can- 
ners of cling peaches grown in the state of California. 
It was antedated only by the milk agreement for the 
Chicago market. It is of interest not alone because of its 
early date and significance as something of a model for 
the form of agreement to be used, but also because this 

i6 5 



i66 MARKETING AGREEMENTS 

agreement was made the test of the possibility of enforc- 
ing similar undertakings. 

Growers and processors of California canning peaches 
found themselves in a serious situation as they faced the 
operating season of 1933. Market conditions in 1932 had 
been so bad that barely half the crop of peaches had been 
harvested, and for these the growers had received only 
about $6.50 per ton, whereas the estimated cost of picking 
and delivering to the plant was approximately $5.00 per 
ton. This was simply the culmination of several bad years. 
Informal efforts at control in 1930 and 193 1 had shown 
partial success and both growers and canners were eager 
to see if something decisive could not be done under the 
new act to remedy the situation in their industry. 

Official estimates placed the probable 1933 crop of No. 
1 peaches at 284,000 tons. Persons conversant with the 
situation believed that if no restrictions were placed on the 
marketing of this crop, prices would fall to as low a point 
as they had reached the previous season, demoralizing the 
market and in all probability resulting in a large part of 
the crop not being harvested. They argued, however, that 
if a definite limit of something like 10 million cases were 
set on the pack (a 50 per cent increase over that of the 
previous season), this supply could be disposed of at a 
price which would enable canners to pay producers a price 
of $22.50 per ton "harvested basis." x After a period of in- 
formal discussions a public hearing was held in Washing- 
ton on July 31, 1933 at which a proposed marketing agree- 
ment was presented. This agreement provided for a limi- 
tation of the total pack of cling peaches in the season of 
1933 to 218,000 tons of No. 1 cling peaches, or a total pack 
not to exceed 10 million cases. 

1 AAA Press Release No. 198-34. 



CANNING CROPS, DRIED FRUITS, NUTS 167 

As the agreement was finally drawn, the size of the 
permitted pack was limited to this amount and the price 
per ton set at $20. It was provided that each canner should 
pay into a surplus crop fund the sum of $2.50 for each ton 
of peaches purchased by him. This fund was to be used 
to pay growers for fruit not taken by the canners, the 
rate to be $15 per ton 2 — the equivalent of the price paid 
for peaches actually canned, allowing for harvesting costs 
estimated at $5.00 per ton. This agreement was put in 
final form as rapidly as possible after the hearing, which 
closed on August 1, was hurried back to California for 
signing by the processors, and was approved by the Secre- 
tary of Agriculture on August 16. Of the 56 concerns in 
the industry, about 40 had signed at the time the Secretary 
gave his approval, but a few were known to be irrevocably 
opposed to the agreement. On August 17 all processors 
were brought under its terms through the use of the 
licensing power. 

Administratively, the agreement was not essentially 
different from others which we have discussed. There was 
set up a control committee consisting of eight representa- 
tives of canning interests, one representative of the state 
Farm Bureau Federation, and one member representing 
the consuming public. Along with the control committee 
there was a crop estimating committee consisting of one 
representative each from the Farm Bureau Federation, the 
California Canning Cling Peach Growers' Association, 
the Canners' League of California, and the independent 
canners. Finally, there was a board of allocation, to be 
designated by the Secretary of Agriculture. The crop 
estimating committee was at once to undertake a survey 

2 If canners' payments of $2.50 per ton failed to provide adequate funds 
for this purpose, an additional assessment was to be made. 



168 MARKETING AGREEMENTS 

and estimate of the total crop, which was to be reported 
to the Secretary of Agriculture and to the allocation board. 
Should this estimate show that the total crop of No. i 
cling peaches exceeded "the amount necessary to pack 10 
million cases, the allocation board shall allot to each can- 
ner from the agreed maximum pack of 10 million cases 
the maximum number of cases which each canner may 
pack." This allotment was to be "predicated . . . upon 
previous sales record, demonstrated potential sales ability, 
and outstanding contractual commitments." To deter- 
mine the amount of payments to be made to growers for 
peaches in excess of the total quota of 218,000 tons, the 
control committee was to appoint field committees for the 
purpose of appraising the tonnage of each orchard. 

"In order to stabilize the market for canned peaches so 
that canners may be able to meet their contractual obliga- 
tions to growers," there was set up a schedule of maximum 
and minimum prices at which the canned product 
(classified under 21 items) could be sold. These prices 
were subject to change by the Secretary of Agriculture 
upon his own initiative or on the recommendation of the 
control committee. Each canner was required to publish 
and file with the committee his opening prices for the 
1933 pack (within the prescribed maximum and mini- 
mum range) and these were to be increased in accordance 
with any subsequent advances which the Secretary might 
make in the original schedule of maximum and minimum 
prices included in the agreement. In case of such in- 
creases the canner was to pay 25 per cent of such increased 
price on subsequent sales into a "price increase fund." Any 
canner who decreased his prices in accordance with the 
decrease in maximum and minimum prices promulgated 
by the Secretary might claim a credit of 25 per cent of 



CANNING CROPS, DRIED FRUITS, NUTS 169 

such decrease from the price-increase fund, any residue in 
the fund at the end of the season to be returned pro rata 
to growers on the basis of unharvested No. 1 peaches as 
well as those delivered to canners. 3 

In spite of the efforts made to get this agreement 
promptly into effect, the operating season was well under 
way by the time it was finally approved and the license 
issued. Many canners had made forward sales of their 
product at prices which would not permit them to pay 
the growers the rates stipulated in the agreement, and the 
Adjustment Administration therefore immediately under- 
took to have all such canners request of their purchasers 
such a scaling up of prices as would enable them to fulfill 
the terms of the marketing agreement. Re-enforcing this 
effort, Mr. Peek on August 31, and again two weeks later, 
sent letters to the wholesale dealers involved in the situa- 
tion, asking them to agree to the desired adjustment of 
prices. In the main these efforts met with success, but one 
comparatively small co-operative cannery, which had re- 
fused to sign the marketing agreement, claiming that the 
Secretary had no jurisdiction over its operations, alleged 
that prior contracts with the distributors of fruits prevented 
it from paying the stipulated prices to growers. Another 
cannery openly disregarded its license, and a dozen or 
more of those who had originally declined to sign the 
agreement showed every intention of evading the terms 
of their licenses if possible. After some delay a restraining 
order upon the chief offender was secured and conditions 
improved but did not become entirely satisfactory. 4 

In spite of these difficulties, the California cling peach 

3 The marketing agreement also contained rather extensive provisions 
(Article IV) covering terms of sale, allowances, standardization and inspection, 
classification of customers, unfair competition, and the like. See Chap. XIII. 

4 For further comment on enforcement, see pp. 273, 275. 



170 MARKETING AGREEMENTS 

agreement was generally regarded as having accomplished 
the main purposes for which it was intended. Payments 
to the surplus crop fund were sufficient to pay growers in 
full for peaches left unharvested under the restriction 
plan. Early in January the Adjustment Administration 
estimated total returns to growers as amounting to 5 mil- 
lion dollars, compared with $906,000 in 1932. 5 The crop 
was reduced by dry weather to slightly less than original 
estimates but would have been sufficient to make about 
12.6 million cases of canned peaches. 

. . . Canners applied to the allocation board for a total pack of 13.4 
million cases and if no agreement had been in effect, probably 
would have packed about 13 million cases, obtaining 400,000 cases 
from No. 2 peaches. 

If 13 million cases had been canned in 1933, the market for 
canned peaches, instead of being in a fair position, as it now is, 
would be utterly demoralized. Severe price cutting would have 
developed and it is probable that the carry-over on June 1, 1934 
would have been increased in spite of the disastrously low prices 
that would have prevailed. 

While canners generally will not make much profit on their 
1933 pack of peaches, neither are they likely to experience much 
loss. If the pack had not been limited, canners' selling prices 
would have been much lower as compared with the cost of canning, 
even though the prices paid to growers for raw fruit had been 
much lower than they were under the agreement. Consequently, 
without an agreement, canners would have lost considerable money 
on their peach operations in 1933. 6 

The carry-over on June 1, 1934 was somewhat above 
normal, and canners and growers were already at work on 
a new marketing agreement for the 1934 season. Changes 
introduced in the new agreement were designed to sim- 

5 AAA Press Release No. 1527-34. Later stated as an increased return of 
$2,750,000. AAA Press Release No. 2584-34. 

6 The same, p. 3. 



CANNING CROPS, DRIED FRUITS, NUTS 171 

plify the machinery of control and at the same time to 
make it more effective by dealing with surplus at the 
source. Instead of assigning quotas to the canners, a pro- 
ducers' prorate was provided. After the control com- 
mittee had by survey determined the probable size of the 
total crop and the market outlook as based on the general 
price level, the buying power of consumers, and the com- 
petition from other products, it was to determine and an- 
nounce the "total tonnage that may be canned." This 
total tonnage was then to be prorated to each individual 
orchard on the basis of an appraisal of each orchard by 
two appraisers, one of whom must be a grower of cling 
peaches. The quota thus prorated to the grower was his 
"deliverable tonnage for canning," and the control com- 
mittee issued him a certificate for this volume of product. 
No canner could receive any cling peaches except such as 
were accompanied by such certificates. 7 Subject to this 
limitation the canner was free to buy and can peaches in 
such amount as he might be able to purchase them in 
competition with other canners and without contribution 
to any adjustment fund. As a check upon his output, how- 
ever, it was provided that he must not produce a pack of 
more than "48 cases No. 2% cans or the equivalent thereof 
per ton." For any excess he was required to pay to the 
control committee liquidated damages ranging from 20 
cents per case on excess of two cases per ton to $2.00 per 
case on an excess of more than ten. 

This agreement went into effect on July 6 after being 
signed by canners representing 86 per cent of the industry 
and was made binding on all by a license effective July 12. 8 

7 This was one of several important recent developments in the use of grow- 
ers' certificates as an operating device. It is designed to prevent favoritism 
among producers on the part of processors or distributors. 
8 AAA Press Release No. 74-35. 



172 MARKETING AGREEMENTS 

The 1934 canning peach agreement was regarded as even 
more successful than that of 1933, at least as far as the 
grower was concerned. Under its simplified provisions the 
problem of compliance was in large part met, al- 
though one large canning concern which had signed the 
agreement sought to surrender its license and enjoin the 
Secretary from holding it to compliance with its terms. 
This complaint against the AAA was dismissed, and the 
Secretary of Agriculture then proceeded with the regular 
enforcement proceedings. (See Chapter XIII). The new 
method by which allotments were made to individual 
growers led to considerable dissatisfaction as to the man- 
ner in which these quotas were arrived at. The making 
of appraisals of the growing crop on every individual 
orchard is obviously an arduous and delicate task. 

Since this was a one-year agreement, it would expire 
automatically in the summer of 1935. During the spring, 
suggestions were forthcoming from grower interests that 
a new agreement be drafted to take its place. 

Packers, however, were less enthusiastic and pointed 
to what they considered would be two disturbing results 
of the higher prices in 1933 and 1934. One was the 
opportunity which this had afforded to pear packers to 
promote sales of their product and perhaps permanently 
win way in the market for canning peaches. The other 
was the possible over-stimulation of plantings of peach 
trees. On this point, opinion is sharply divided. There 
can be no question that there was a distinct increase in 
plantings, but part of it was to be accounted for in terms 
of deferred maintenance. Obviously the proper rate of 
replacement depends upon the rate and extent of recovery 
of general purchasing power and the relative appeal that 
different products will be able to make to that purchasing 



CANNING CROPS, DRIED FRUITS, NUTS 173 

power. Hence this issue is interlocked with the previous 
one with reference to the possible permanent encroach- 
ment of canned pears on the market. 

In any event, canners as a group decided to ask exemp- 
tions from the marketing agreement and licensing features 
of the Agricultural Adjustment Act (see pages 289, 2Cjon) 
and, with a few exceptions, such exemption was conferred 
under the amendments of August 24, 1935. These develop- 
ments were in large part responsible for the effort to 
abandon the new peach agreement in 1935, and the 
amendments now preclude any further activity in this 
field. 

OTHER CANNING CROP AGREEMENTS 

Somewhat similar to the cling peach agreement was the 
agreement for the California ripe olive canning industry 
which became effective on December 9, 1933. The grow- 
ing of olives in California had been expanding rapidly 
during the preceding decade and very much exceeded the 
capacity of the domestic market to absorb the canned 
product. As a result more than a third of the crop went 
to the much less remunerative oil market. The keenness 
of competition among canners had produced a disastrous 
price situation in 1932. Growers were therefore anxious to 
secure some form of stabilization agreement for the 1933-34 
season. 

The principle upon which such an agreement should be 
based had been clearly pointed out two years before the 
passage of the Agricultural Adjustment Act: 

By utilizing a larger proportion of the olives for oil the amount 
of olives canned could be materially reduced. This would tend to 
increase the prices of canning olives without causing a decrease in 
the prices of oil olives because California production of olive oil is 
such a small part of the national supply. Until the present large 



174 MARKETING AGREEMENTS 

carry-over is reduced, such a procedure would be of distinct benefit 
to the industry. It cannot be accomplished, however, unless it is 
undertaken as an industry program and participated in by all 
factors in the industry. 9 

The agreement entered into in December 1933 con- 
templated just such an industry-wide program. It pro- 
vided a schedule of growers' prices according to the several 
varieties and sizes binding upon all canners. These prices 
were computed to average $108 per ton or approximately 
three times the 1932 rates. For the finished product, also, 
there was established a scale of minimum prices subject 
to modification by the Secretary. 

For the purposes of carrying out these provisions, a con- 
trol committee and a crop estimating committee were 
established and entrusted with the duty of determining 
each year "the amount of olives of any variety or size 
which it [the control committee] deems it advisable to 
pack in the ensuing canning season." The committee 
assigns canners their respective quotas in this total pack, 
and after appraising the crop of growing olives in each 
orchard, allots each grower a "salable tonnage," in such 
proportion to his available tonnage as will give him an 
equitable share in the total to be packed. No canner is 
permitted to purchase, or to accept from any grower, 
olives in excess of this salable tonnage except with the 
express permission of the control committee. 

This agreement came into force too late to affect the 
size of the 1933 pack, but the minimum price provisions 
were regarded as having a favorable effect on returns to 
packers. Since most of them were co-operative, the benefit 
was reflected to growers. On October 1, 1934 the Secre- 

9 H. R. Wellman, "Olives," University of California Bulletin No. 510, 
March 1931, p. 4. 



CANNING CROPS, DRIED FRUITS, NUTS 175 

tary of Agriculture approved the schedule of minimum 
prices to producers for the coming season and certain 
changes in the schedule of minimum prices to distributors, 
but the provisions for control of the size of the pack were 
not brought into operation. This agreement was consid- 
ered distinctly beneficial by the interests involved and they 
secured exemption of their industry from the general ex- 
clusion of canning crops from the marketing agreement 
provisions of the Adjustment Act as amended in 1935. 
It appears probable that a new ripe olive agreement will 
shortly be developed with some modifications suggested 
by past experience. 

Canners of California asparagus began early in 1934 to 
consider a marketing agreement for their industry. Owing 
to the highly perishable character of the product and its 
habits of growth, the control problem was different and 
in certain ways simpler than that for other commodities 
which we have been discussing. After a public hearing 
on January 20 an agreement was worked out and tenta- 
tively approved which embodied the following features. 
A control committee, after proper study of the market 
situation, 10 was to name a total pack which might be put 
up by all canners during the 1934 season. No allocation 
of this pack among the several canners or the growers was 
to be undertaken, but April 1 was declared to be the 
opening date of the packing season, and no plant was to 
operate prior to that date unless the control committee 
gave specific permission in order to take care of asparagus 
suitable for canning but excluded from the fresh asparagus 
market under the proration arrangement provided for in 
the marketing agreement for fresh asparagus (see page 

10 This is facilitated by the fact that for this crop, as for many other products 
grown in the state, the Giannini Foundation of the University of California 
had already made careful analysis of production conditions and market demand. 



176 MARKETING AGREEMENTS 

136). The control committee was to watch the progress 
of canning operations and determine the date and hour 
at which approximately the maximum number of cases 
set as the total pack had been packed and to announce 
this date as the closing of the canning period. Such 
notice was to be given at least three days before the closing 
time and no canner was permitted to operate thereafter. 

When the tentative agreement was returned to the pro- 
ducing territory to be signed by the canners, they 
objected to its provision with reference to books and 
records. Though unwilling to abrogate what they con- 
sidered their rights in this regard, they were ready to 
operate under a license embodying the sajne terms. Ac- 
cordingly, the marketing agreement was dispensed with 
and the Secretary invoked the broad powers of the licens- 
ing section of the act to issue such a license, covering all 
canners of asparagus, effective on March 6. Results under 
this license were regarded as satisfactory, although the 
manner of setting the date for the beginning of the can- 
ning season had one important defect. It caused growers 
to deliver all their asparagus to the canner on and after 
April 1, in spite of the fact that there was profitable ship- 
ping demand for fresh asparagus after that date. As each 
canner was interested in putting up as many cases as he 
could before the quota was reached, he would be unwill- 
ing to allow any part of the crop of his contract growers 
to be diverted to this fresh-produce market, even though it 
would be more remunerative to the grower. Even so, 
returns to growers averaged 3 cents per pound in 1934, 
as compared with 1% cents in 1933. 

In the spring of 1935, growers and canners felt that a 
marketing agreement which would limit the size of the 
pack was desirable, but they had divergent views as to 



CANNING CROPS, DRIED FRUITS, NUTS 177 

method. Eventually an agreement was completed and 
made effective with a license on April 3. This agreement 
embodied limitation provisions essentially similar to those 
of the 1934 agreement. The control committee on April 5 
fixed the maximum pack at 2,250,000 cases. The date for 
opening the packing season had been established in the 
agreement as March 15 in the Imperial Valley and March 
16 elsewhere in the state of California. On June 13, the 
control committee set eleven o'clock in the morning of 
June 21 as the close of the canning period. It was esti- 
mated that by this time the permitted maximum quota of 
2,250,000 cases would have been packed. 

In order to avoid the tendency during the early days of 
the packing season to divert to canning uses asparagus 
which might otherwise have gone to the fresh asparagus 
market, it was provided that between March 26 and March 
31, inclusive, no canner might take delivery of asparagus 
from any grower except such as was harvested from acre- 
age in excess of what the grower was permitted to ship 
as fresh asparagus under proration regulations established 
by the fresh asparagus marketing agreement. If there 
were no proration, or one which permitted shipping 75 
per cent or more of acreage, then the canner might not 
take any deliveries during this period. There was a fur- 
ther provision of similar though somewhat more elaborate 
character covering the period from April 1 through April 
15. Owing, however, to the curtailment of the fresh 
asparagus crop during this period, these provisions were 
not called into play during 1935, but they illustrate an in- 
genious attempt to correlate agreements for a product 
which is sold both fresh and in processed form. 

Compliance with this agreement during the 1935 season 
was satisfactory. Price results also were favorable. Com- 



178 MARKETING AGREEMENTS 

petition developed among the packers, some of whom felt 
that they had not secured their proper share of the business 
in 1934, with the result that average prices had pushed up 
to approximately 3.8 cents per pound — about a half cent 
per pound over the 1934 average. 11 The pack of 1935 was 
more than 10 per cent larger than that of 1934, so growers' 
incomes were distinctly improved. Since the price of 
1934 had resulted in a report of "intentions to plant" 
which were generally regarded as excessive, there was 
some fear that the long-run effects of the agreement 
might be harmful. The Adjustment Administration has 
warned the industry of this danger. 12 However, actual 
plantings were only about one-third the reported "inten- 
tions." 

Besides these three control schemes that have actually 
been put in operation, five other marketing agreements for 
canned products have been proposed. We have already 
referred to the proposed marketing agreement for Pacific 
Northwest Bartlett pears (page 142) which provided for a 
season's prorate of canning pears to canners and to grow- 
ers respectively in conjunction with a prorate of shipments 
of fresh pears. Though tentatively approved on July 7, 
1934, it did not meet with sufficient favor to be made 
effective. 

Canners of sour cherries were struggling with a heavy 
carry-over of stock in storage during the winter of 1933-34. 
Competition had forced prices to extremely low levels, and 
canners hoped to be able to work out an agreement by 
which a schedule of minimum prices could be put into 
effect and by license made binding upon all canners. The 

11 These figures and other material presented in this discussion are drawn 
from a special report prepared by R. H. McDrew, marketing specialist, General 
Crops Section, AAA. 

12 AAA Press Release No. 1890-35. 



CANNING CROPS, DRIED FRUITS, NUTS 179 

tentative agreement also provided that the executive com- 
mittee should "open negotiations and confer with other 
branches of the cherry industry ... to the end that a mar- 
keting agreement embracing the entire cherry industry 
and controlling the production, packing, marketing, and 
distribution of cherries may be entered into with respect 
to the 1934 and subsequent crops." It proved impossible, 
however, to get a sufficient number of canners to support 
this agreement and, though tentatively approved by the 
Secretary on February 27, 1934, it never became effective. 
Three other proposals were made covering important 
vegetable canning crops. Before discussing them, how- 
ever, a few words should be said concerning informal 
understandings under which canners had co-operated in 
advancing prices during the 1933 season. Within a few 
weeks after the Adjustment Administration got into oper- 
ation it began receiving appeals from growers of canning 
crop tomatoes who felt that a revision of the prices at 
which they had contracted to furnish tomatoes to the 
canners should be made. Their argument was based on 
higher harvesting and other costs as a result of the higher 
wage levels and increasing costs of materials. In response 
to these requests, Coadministrator Brand sent a series of 
telegrams between August 3 and 11 to tomato-canning 
companies and officials of the various state canning asso- 
ciations, requesting that they increase by 25 per cent the 
prices which they had contracted to pay growers. He 
pointed out that, while such a revision of prices would be 
vital to farmers' prosperity, it would involve a difference 
of less than one cent per can to consumers. A generally 
favorable response to these requests was secured and con- 
tract prices for sweet corn, lima beans, beets, and cabbage 



180 MARKETING AGREEMENTS 

for kraut, as well as tomatoes, were covered by the read- 
justments. 13 The pea canning season was already over and 
the pear canning season on the Pacific Coast so far ad- 
vanced that no general raising of prices there could be 
brought about by such a short-cut procedure. 

Early in 1934 efforts were begun 14 to effect marketing 
agreements for the principal varieties of canning vegeta- 
bles which would strengthen and make permanent the 
undertakings begun in the midst of the 1933 operating 
season. Hearings on proposals covering the canning of 
sweet corn, of peas, and of tomatoes and tomato products 
were held on February 15 and 19 and on March 3 respec- 
tively. These proposals included a guaranteed scale of 
minimum prices to growers, 15 according to type of product 

13 Supplementing its efforts with the canners, the Administration also ap- 
proached wholesale buyers, chain stores, and others who held forward con- 
tracts with the canners, urging them to accept a revision of prices compatible 
with that being made by the processors. Here again a large measure of co- 
operation was secured and the Adjustment Administration followed the matter 
up through efforts to see that all price advances were passed forward to the 
consumer without pyramiding and passed back to the growers without deduc- 
tion. In August severe storms visited the Atlantic Coast producing section and 
some growers were inclined to violate their contracts and hold for higher 
prices than those to which they were entitled under the adjusted scale. In this 
situation, the AAA used its influence to persuade growers to live up to the 
letter of their contracts. 

14 At the annual convention of the National Canners' Association in Chicago 
January 17-19, the matter was discussed and committees appointed covering 
peas, corn, and other canning crops. 

15 In the case of corn the 1934 price was to be at least 40 per cent above 
that paid in 1933 on varieties for which the price was less than $7.00 per ton 
and 35 per cent higher on varieties for which $7.00 or more had been paid in 
1933. For peas, the canners were to pay at least $6.50 more per ton for 
shelled peas than the prices paid the previous year. This would bring prices 
to approximate parity of purchasing power as compared with prices during the 
1909—14 base period set up in the act. The advance amounted to about 15 
per cent. On tomatoes the increase was $2.25 per ton above 1933 contract 
rates prior to the voluntary adjustments made at the request of the AAA. This 
$2.25 advance applied to "flat price" buying; when buying was by grades, 
differential adjustments were permitted but advances had to average not less 
than the flat rate. 



CANNING CROPS, DRIED FRUITS, NUTS 181 

and the district in which the cannery was located, and a 
limitation of the total pack under a system of district 
quotas based on the average volume packed during the 
preceding six years. Any product in excess of the allo- 
cated quotas was to be impounded until July 15, 1935. In 
the hearings considerable objection to this method of 
attempting to limit the total product was apparent, some 
arguing that even though impounded, any excess would 
have a proportionately depressing effect on prices; some 
attacking very vigorously the equitableness of the appor- 
tionment; and others holding that the stipulation of mini- 
mum growers' prices would of itself impose a sufficient 
check on packing operations. As a result, the scheme of 
allocation among districts and the assigning of quotas to 
canners was dropped, and the agreements provided simply 
for systems of minimum prices to growers. 

In this form, the corn and pea marketing agreements 
were tentatively approved on March 14, and the tomato 
agreement on April 24. It had become fairly evident that 
the kind and quantity of statistical information needed 
for making such a national proration on an equitable basis 
were sadly lacking. The situation in these crops is in sharp 
contrast to that in certain canning crops, such as cling 
peaches and asparagus, which are produced under highly 
specialized and geographically localized conditions. In 
the absence of provisions for regional allotments, canners 
who had been hopeful of deriving benefit under these co- 
ordination plans lost interest when the agreement tenta- 
tively approved was reduced to little more than a guaranty 
of price advances to growers. The number willing to sign 
was not sufficient to bring any of these agreements into 
effect and, as already noted, canners have now secured ex- 
emption from the agreement and license provisions of the 
act except as to asparagus and ripe olives. 



182 MARKETING AGREEMENTS 

DRIED FRUIT AGREEMENTS 

Three agreements have been put in operation in the 
field of dried fruit marketing. The date-packing industry 
of California was the first of the dried fruit group ie to 
seek to avail itself of the marketing agreement facilities of 
the Agricultural Adjustment Act. After informal discus- 
sions a public hearing was held at Indio City, California 
on December 18, 1933. This resulted in the drafting of 
a marketing agreement which secured the tentative ap- 
proval of the Secretary on March 7 and, after acceptance 
by practically all of the date shippers, was made effective 
on June 8, 1934. 17 

The distinctive feature of this agreement was the nam- 
ing by the control committee of such a monthly schedule 
of minimum prices as "will in the opinion of the com- 
mittee after consideration of all market factors permit of 
sale during the ensuing month of such a quantity of dates 
at such prices that will result in the largest return to 
growers." The agreement contained no provisions for 
control of surplus supplies but aimed rather to distribute 
whatever volume of product might come forward from 

16 Prior to the marketing agreement for handlers of domestically produced 
dates, there had been a code of fair competition for the imported date pack- 
ing industry. This industry had been suffering from a highly competitive 
situation with price cutting not merely keen but, in the judgment of many of 
the persons involved, unfair. Relief from this situation was sought not under 
the Agricultural Adjustment Act, since no American producers were involved, 
but under the National Industrial Recovery Act. Under the President's transfer 
order of June 16 (see p. 31), this code came to the AAA for handling. After 
informal hearing on September 13, a code of fair competition for the imported 
date-packing industry was drawn up and approved by the President on Nov. 
11, 1933. Besides its regulation of hours and wages and its general labor pro- 
vision, the code set forth a schedule of unfair methods of competition which 
were to be prohibited. The four sections of this schedule covered advertising, 
misbranding, compliance with the Federal Food and Drugs Act, and destruc- 
tive price cutting. 

17 It was accompanied by a license effective June 11, and was amended on 
September 18 to simplify the grading provisions. 



CANNING CROPS, DRIED FRUITS, NUTS 183 

growers in such a way as to eliminate price cutting and 
secure as high a level of prices as was permitted by the 
state of market demand. This schedule of minimum 
prices established each month was regarded as "putting 
a bottom under the market" and getting a better average 
for the year than would otherwise have been the case. 

This agreement was launched at a rather unfortunate 
time. A big crop was in prospect and emphasis in the 
agreement was placed on grading and the protection of 
quality. Subsequent adverse weather conditions reduced 
the quantity by perhaps one-third and resulted in a large 
percentage of low-grade product. In spite of somewhat 
disappointing results last year, there is indication that the 
date industry, later if not this year, will wish to under- 
take some new form of agreement under the amended act. 
Minimum price provisions are no longer possible, but a 
simple agreement designed to exclude low-grade dates 
from the market might be worked out. 

On March 26, 1934 the raisin packers and growers of 
California participated in a public hearing at Fresno, Cali- 
fornia on a proposed marketing agreement for their indus- 
try. As already mentioned in our discussion of fresh 
grapes, the raisin industry had had a long history of co- 
operative and trade endeavor to secure co-ordinated action 
in the market. After a period of great prosperity for 
several years ending in 192 1, there had followed a succes- 
sion of disastrous years with oppressive surpluses, inability 
to liquidate credit obligations, agreements to refrain from 
harvesting part of the crop, and even the payment of a 
bonus for vines uprooted. None of these expedients had 
met with more than partial and temporary success, and 
discussions among the interested parties in the fall of 1933 
had failed to produce sufficient harmony so that a mar- 



184 MARKETING AGREEMENTS 

keting agreement could be perfected. The meeting on 
March 26, however, was more successful, in part perhaps 
because it was intimated that the extension of loans 
through federal credit agencies would be conditioned upon 
the inauguration of some sort of price-supporting under- 
taking. The proposals submitted at the March hearing 
were reduced to final form in an agreement which was 
tentatively approved by the Secretary on May 21. This 
was promptly signed by packers handling over 90 per cent 
of the raisin crop and was made effective on May 29. The 
accompanying license became effective two days later. 

As in the date agreement, minimum prices were pro- 
vided, but they were to apply to the whole season. 18 In 
order to adjust supplies at a level compatible with the 
maintenance of these minimum prices, the marketing 
control provision of the agreement (Article V) provides 
for the withholding of part of the raisins acquired by the 
packers (15 per cent in 1934) as a "control percentage to 
be turned over to the control board." 19 These raisins are 
held as a surplus stock off the market until after 75 per 
cent of the total crop of any variety has been acquired by 
the packers. If the control board then decides that all or 
any part of the reserve of any variety can be absorbed 
without breaking the minimum prices called for in the 
agreement, it may be offered to the packers at not less 
than the minimum price. The quantity any packer is per- 

18 Prices for Thompson Seedless, Sultana, and Muscat raisins of the 1934 
crop, and Thompson Seedless for 1933 were named in the agreement. This 
agreement is of the continuous type and provides that in subsequent years the 
schedule of minimum prices shall be established on recommendation of the 
control board made on or before June 15 and approved by the Secretary prior 
to July 1. The prices apply to raisins of standard or better grade. If inferior 
grades are used, they shall be bought at such differential prices as shall be 
determined by the control board. 

19 Consisting of five representatives of growers, five of packers, and one 
chosen by the vote of at least eight of these ten. 



CANNING CROPS, DRIED FRUITS, NUTS 185 

mitted to purchase is in proportion to the tonnage which 
he has turned over to the control board. If any packer 
does not elect to take the whole of this quota, any re- 
mainder shall be re-offered to the other packers. 

After July 1, the control board may dispose of any 
raisins falling within the control percentage at such prices 
as it thinks suitable for by-product uses or any other dis- 
position which in its judgment will not interfere with 
the market for packed raisins. All such control percent- 
age raisins must be disposed of by December 1 of the year 
following the one in which they are harvested. The pro- 
ceeds of sale are distributed to the growers on a pool basis 
less the expenses involved in handling them. 

The raisin agreement operated effectively until about 
April when there were violations on the part of several 
small packers. No very vigorous enforcement proceed- 
ings were undertaken; the situation, already somewhat 
complicated by the discussion of amendments which were 
in a highly controversial state of congressional debate, 
was still further complicated by the Schechter decision on 
May 27, 1935. Since first violators were not proceeded 
against, non-compliance was almost forced on others, and 
late in the season the agreement practically broke down, 
with prices declining some $10 or $15 per ton. Prices 
during the season as a whole, however, had been highly 
satisfactory. The crop was relatively light and prices 
averaged about $60 for marketable and surplus tonnage 
taken together. 

In spite of the disappointing outcome of last year's agree- 
ment, grower sentiment strongly favors a new agreement 
under the amended act. Packers, on the other hand, are 
doubtful whether enforcement proceedings would be 
vigorous or could be effective until definite determination 






186 MARKETING AGREEMENTS 

of the constitutionality of the act can be secured from the 
Supreme Court. The season's grape crop is heavy, with 
prospects of a large tonnage going into raisins. The 
Administration, therefore, has a difficult question to de- 
cide. Should it labor to promote an agreement in the face 
of packer opposition and such prospects of enforcement 
as it has? Or, should it terminate the whole agreement 
as the packers request and not initiate a new agreement 
which growers could perhaps muster a sufficient vote to 
force under the amendment provisions? 

The marketing agreement for dried prunes produced 
in the state of California is the most complicated of the 
dried fruit agreements. The character of the product, the 
nature of the merchandising process, and the set-up of the 
co-operative and trade agencies involved necessitated the 
inclusion of detailed and complicated provisions covering 
the delivery and handling of the crop. In its simplest 
terms, however, the plan contemplates the segregation of 
all off-grade prunes and a portion of those of standard 
grades, and the placing of this portion of the crop in 
charge of a control committee authorized to handle it in 
the interest of the growers on a pooling basis. The pro- 
portion of the 1934 crop of standard prunes to be with- 
held in this "reserve percentage" might vary according to 
the size of the crop from 10 per cent at the 150,000- 
160,000-ton level to 44 per cent if the crop were above 
250,000 tons. For subsequent years it may vary according 
to this same scale or 5 per cent less in the discretion of the 
control committee. The remainder, or "free percentage," 
of the crop may be purchased, sold, or handled by the trade 
agencies, co-operative or otherwise, freely according to 
their several merchandizing practices. The reserve per- 
centage of standard prunes and the supply of sub-standard 



CANNING CROPS, DRIED FRUITS, NUTS 187 

product are diverted into non-competitive markets, or by- 
product uses, or are released to the various distributors at 
the discretion of the control board in such a manner 
as it believes will best promote the interests of the industry. 
There is an elaborate scheme of grower advisory com- 
mittees to exercise a veto power on the release of pool 
tonnage by the control board and the prices at which such 
fruit can be turned over to distributors. 

The prune agreement, like the raisin agreement, repre- 
sents the latest stage in the evolution of a long struggle to 
bring about controlled marketing of the whole California 
prune crop. 20 Co-operative organization dates back to the 
beginning of the century, but this early organization was 
short lived. After a period of disastrously low prices, the 
California Prune and Apricot Growers, Inc. staged a 
vigorous revival of co-operative effort in 19 17, and this 
organization, in spite of difficulties which necessitated 
reorganization, 21 still functions as the pacemaker of both 
technological and commercial progress for the industry. 
It has not been able to win the adhesion of a dominating 
percentage of the growers, but, in lieu of this, has partici- 
pated in an effort to effect the integration of merchandis- 
ing operations for the whole industry through a sort of 
clearing-house arrangement which was operated during 
1932 and 1933 under the name of the United Prune Grow- 
ers of California. 22 While this organization was reason- 

20 It should be noted that the prune agreement contains no provisions for a 
co-ordinated plan covering the Oregon-Washington as well as the California 
crop. Prunes from the Northwest section are of the Italian, or tart, variety, 
and those of California are of the French, or sweet, variety, and hence are not 
completely competitive. It would seem, however, that the difference is not 
particularly greater than that between Florida and California oranges. 

21 Under the name California Prune and Apricot Growers' Association. 

22 Sunsweet Standard (house organ, California Prune and Apricot Growers' 
Association), July 1932, p. 6. 



188 MARKETING AGREEMENTS 

ably successful in operating a "prune industry plan" in 
1932 and 1933, its leaders (including those in the under- 
lying organizations — the California Prune and Apricot 
Growers' Association and the California Prune Pool) felt 
that their position would be enormously strengthened if 
they were to avail themselves of the marketing agreement 
and license provisions of the Adjustment Act as a means 
of bringing the minority interests (about 15 per cent) 
under the influence of the central selling agency. 

Efforts to perfect a marketing agreement plan were 
launched in the spring of 1933 and were continued for 
nearly a year before the various parties and interests could 
be brought to sufficient harmony so that a workable agree- 
ment could emerge. At length a public hearing was held 
in San Francisco on June 12, 1934. The session continued 
for four days while the various difficulties were being 
ironed out. By that time the season was so far advanced 
that it was apparent to all that unless prompt agreement 
could be secured the whole attempt would be futile. Faced 
with the alternative of failure, the various factions gave 
ground sufficiently to permit the drafting of an agreement 
for the Secretary's approval. This was given on August 13. 
The agreement was promptly signed by the distributors 
(only 13 in number but representing 93 per cent of the 
business) and made effective by the Secretary's order on 
August 17, together with a license effective the same day. 

Owing to the lateness of the season at which the agree- 
ment was perfected and the high percentage of sub-grade 
prunes which resulted from weather conditions in the 
summer of 1934, the agreement did not get into operation 
under auspicious circumstances. The situation was fur- 
ther complicated by the erection of trade barriers in the 
countries of Central Europe which ordinarily afford an 



CANNING CROPS, DRIED FRUITS, NUTS 189 

outlet for a considerable volume of dried prunes. While 
it is impossible to point to any improvement in prices as 
a result of the operation of the agreement, its proponents 
express confidence that it has prevented declines that 
otherwise would have brought complete demoralization 
of the market. 23 

At the request of packers, this agreement was amended 
on August 9, 1935 so as to limit its operation to the 1934 
crop. It will continue in operation only to the extent that 
it is necessary to liquidate the stock of sub-standard prunes 
remaining in the hands of the control board. (All stand- 
ard prunes from the surplus have been purchased by the 
Relief Administration.) With the difficult situation con- 
fronted by the industry and the amount of dissension 
which is still prevalent among its several elements, there 
is no discernible prospect of any revival of marketing 
agreement effort in this field. 

WALNUTS AND PECANS 

The situation of the "English" walnut growers of Cali- 
fornia resembles that of the citrus growers in that they 
have over a period of some years developed a co-operative 
marketing agency which is by far the largest factor in the 
walnut business. It controls 90 per cent of the product, 
which is about the same as the co-operative business in 
lemons and somewhat larger than that in oranges. Be- 
sides California, the states of Oregon and Washington also 
produce walnuts, though on a much smaller scale. Here, 
too, there is a co-operative association which is an impor- 
tant factor in the market, although it is not proportionately 
as large as the California Walnut Growers' Association. 

The walnut crop of 1932 had been very large and some 

23 The same, November 1934, pp. 3, 4, 13, 17. 



190 MARKETING AGREEMENTS 

14,000 tons of nuts were carried unsold into the 1933 
season. Although that year's crop was comparatively 
short, the new crop and the carry-over together placed 
on distributive agencies the task of handling a supply of 
merchantable walnuts which was the largest in the history 
of the industry. Seeing a prospect of ruinously low prices, 
the walnut interests in California, Oregon, and Washing- 
ton joined in proposing a marketing agreement which was 
presented at a public hearing in Washington, D. C. on 
September 12. The co-operatives bluntly asserted that in 
the past they had carried the complete burden of equaliz- 
ing supplies and disposing of "surplus" nuts in by-product 
uses or in other low-price outlets. Non-co-operatives had 
shared in the benefits of such price-supporting efforts 
without bearing any of the financial burden. The large 
carry-over of 1933 made a continuation of this practice 
impossible, and the co-operatives served notice that, unless 
everybody joined in a marketing agreement, they would 
have to release their enormous carry-over stocks on the 
market and let everybody share in the resulting collapse 
of prices. 

No opponents of the marketing agreement were present 
at the hearing on September 12, but telegrams were re- 
ceived from independent distributors and non-co-opera- 
tive growers asking for a continuance of the hearing, so 
that their objections could be presented. Such a continu- 
ance was granted to September 18, at which time a repre- 
sentative of the independents presented arguments against 
certain features of the agreement which were considered 
unfair. He assured the Adjustment Administration, how- 
ever, that the independents were willing to join in a 
stabilization program. With minor modifications de- 
signed to meet in part the objections presented at the ad- 



CANNING CROPS, DRIED FRUITS, NUTS 191 

journed hearing, the walnut agreement was tentatively 
approved and sent to the walnut packers for signatures. 
As soon as these were secured, it was signed by the Secre- 
tary of Agriculture, to become effective October 11, 1933. 

Like other agreements in this group, the walnut mar- 
keting agreement provides for limiting the volume of the 
commodity to be placed on the domestic market and 
diverting any surplus above this amount to the market for 
shelled nuts, the export market, or carry-over into the fol- 
lowing season. Determination of the disposal to be made 
of this reserve supply is placed in the hands of a control 
board representing co-operative associations, the indepen- 
dent packers, and the non-co-operative growers. 

In determining the "salable percentage," the control 
board scrutinizes all available data as to estimated 
production and stocks of merchantable walnuts carried 
over from the previous year. The schedule of minimum 
trade prices as established by the control board requires 
a two-thirds vote of its members and is subject to dis- 
approval by the Secretary. Prices may be changed during 
the season, but at least five days' notice must be given be- 
fore such changes become effective. Besides the minimum 
prices, it is also provided that as long as the control board 
has unsold stocks of merchantable walnuts of a particular 
kind or quality, no packer may sell walnuts of this same 
"pack" at a price above a schedule of maximum prices 
set forth in the agreement. 

As to the handling of surpluses, the marketing agree- 
ment provides that the control board shall have full 
authority to dispose of these to cracking plants or in any 
foreign country, with due provision against re-importa- 
tion. The control board may not, however, sell more 
than 50 per cent of the surplus prior to January 15 of the 



i 9 2 MARKETING AGREEMENTS 

given crop year. If, on September i, the control board 
still has unsold stocks on hand and it appears that the crop 
of the ensuing year will be less than the estimated con- 
sumptive demand, the board shall release to each packer 
his pro rata share of the surplus up to an amount which 
will make up the estimated deficiency of the forthcoming 
crop. Thus the agreement would operate to check extreme 
advances of prices in short-crop years as well as to prevent 
extreme declines in flush years. 

The walnut marketing agreement makes no direct pro- 
vision as to the prices which processors must pay to pro- 
ducers, nor does it have any provisions covering handling 
charges. In view of the fact that approximately 90 per 
cent of the crop is packed and marketed by the California 
Walnut Growers' Association, and the North Pacific Wal- 
nut Growers' Association, a large majority of growers 
are assured that any improvement brought about in whole- 
sale prices will be reflected back to them. As for the other 
10 per cent, it will be left to the force of competition to 
determine whether there will be a similar passing on of 
price benefits by the independent packer to the non- 
co-operative grower. 

This agreement worked smoothly 24 during the 1933 
crop-moving period ; the carry-over was reduced and prices 
improved. It is now in effect as to the 1934 crop after 
having been amended on August 27. These amendments 
did not change the fundamental character of the agree- 
ment but were designed to improve its administrative 
procedure. 

The walnut agreement is now being revamped under 

24 One packer was charged with violating the license and, after public hear- 
ing, his license was suspended for a period of one year. This suspension, how- 
ever, was stayed on condition that the firm in future comply with the pro- 
vision of the license. 



CANNING CROPS, DRIED FRUITS, NUTS 193 

the 1935 amendments to the Adjustment Act. The 
principal change necessitated by these amendments is 
the dropping of minimum price provisions. Several minor 
changes, however, have been introduced to simplify and 
improve operation. The text of the agreement as amended 
in August 1934 is presented in Appendix B for the pur- 
pose of showing the details of operation of a "reserve 
tonnage" type of agreement. 

Developments in the pecan industry bear striking 
similarity to those already discussed in connection with 
dates, the first effort being made to secure a code rather 
than a marketing agreement. The distribution of pecans 
had long been subject to conditions covering grading, 
standardization, rebating, and other trade practices which 
were highly unsatisfactory. It was evident that the work- 
ing out of a generally acceptable marketing agreement 
would consume more time than could be allowed if con- 
ditions were to be improved for the handling of the 1933 
pack. Accordingly, an effort was launched to secure a 
code of fair competition for distributors of paper-shell 
pecans, and a public hearing was set for October 23. 

Considerable disagreement developed at this hearing 
and Administrator Peek undertook to expedite action by 
a still simpler procedure. He sought to get distributors 
to accept a schedule of prices and to sign an informal 
agreement that they would adhere to it. He therefore 
wrote a letter to all distributors on October 18 urging the 
maintenance of prices at a level at least equal to those then 
being quoted. These prices, he said, 

. . . were considered as not being too high in light of prospective 
supply and demand conditions. It was felt, however, that these 
prices might be reduced in case distributors should resort to com- 
petitive price cutting as in previous years. A reduction in price at 



^ 



194 MARKETING AGREEMENTS 

this season of the year similar to reductions in prior years resulting 
from unwarranted price cutting might easily mean a loss of $250,- 
000 to pecan producers in the next two months. 25 

The schedule of prices covered 17 items according to 
variety, grade, and size, and ranged from 15 to 31 cents 
per pound. He urged distributors, besides accepting these 
prices, to agree to eliminate various unfair trade practices, 
particularly secret rebates, allowances, concessions, or other 
subterfuges which would tend to undermine the agree- 
ment to maintain the proposed price schedule. Such an 
agreement had already been arrived at by distributors who 
attended the code hearing and who represented some 80 
per cent of the volume handled. 

At this point, code and marketing agreement efforts 
with respect to distributors of paper-shell pecans were 
allowed to rest, but on November 27 a public hearing was 
held to consider a code of fair competition for the shelling 
of seedling or wild pecans. This code, like the other, was 
not approved by AAA but was transferred to NRA, where 
it was approved October 23, 1934. Agitation continued 
for some sort of agreement which could be put in effect be- 
fore the opening of the 1934 crop-moving season. A public 
hearing was called for October 1 at Montgomery, Ala- 
bama to cover all pecans marketed in the shell from the 
Atlantic seaboard to Texas and Oklahoma. This effort 
resulted in the completion of an agreement which covered 
paper-shell nuts only and which was tentatively approved 
on November 7. 

This agreement stipulated a schedule of minimum 
prices to growers designed to raise prices on an average 
of about 2 cents a pound above the price prevailing during 
the last two years. It also laid emphasis on the use of 

25 AAA Press Release No. 866-34, p. 2. 



CANNING CROPS, DRIED FRUITS, NUTS 195 

United States grades and established prices for graded nuts 
about a cent and a half higher than for orchard run or 
ungraded stock. The agreement, however, contained no 
provision for equalizing supplies as between seasons or 
withholding any nuts in a "reserve percentage" at the 
disposal of the control board. 26 The pecan agreement was 
finally made effective on March 13, 1935 solely for the 
purpose of enabling the control board to organize and 
see what could be done about putting it in operation for 
the 1935 season. 

In view of the oft-repeated belief of Adjustment Admin- 
istration officials that marketing agreements can be suc- 
cessful only where marketing channels are well defined, 
it seems somewhat doubtful whether a pecan marketing 
agreement could be made to work. Pecan trees are scat- 
tered over a wide area in the Southern states and many 
farmers produce small lots of nuts which are taken in 
trade by local merchants and handled in ways which are 
very hard to bring under any orderly scheme of distribu- 
tive organization. The present agreement is limited to so- 
called paper-shell nuts, but the line of demarcation is none 
too clear and seedling nuts are distinctly competitive. The 
situation is widely at variance with that of the walnut 
industry. In order to maintain a differential price for 
high-quality nuts, it is proposed to set up strict grading 
and divert all off -grade product to shellers (see page 337). 

26 A marketing agreement for the almond industry has been drawn up and 
was discussed at a public hearing at Berkeley, Calif, on Jan. 7, 1935. Its 
principal features — minimum prices and the withholding of a "control per- 
centage" — follow the general lines of the walnut marketing agreement. The 
chief interest back of this agreement was that of growers who were dissatisfied 
with existing price levels. Distributors, however, including the co-operatives, 
were aggressive proponents of the plan. The hearing was largely for the pur- 
pose of discussing the issues and seeing whether any economic basis for an 
agreement could be arrived at. None has been found thus far. 



CHAPTER X 

DAIRY PRODUCTS 

In Chapters IV, V, and VI we discussed the use of 
marketing agreements for four basic commodities — wheat, 
tobacco, peanuts, and rice. These eleven agreements were 
mostly of limited, special, and temporary types, and the 
drafting of new agreements of similar character or, with 
one or two exceptions, the continuance of the old agree- 
ments now appears unlikely. In Chapters VII, VIII, and 
IX we examined agreements as applied to some 25 general 
crops. For these crops the marketing agreement method 
constitutes the only type of adjustment available under 
the act. We turn now to a group of products for which 
this method alone has been used, although it was not the 
only one available. The way in which it has been applied 
differs so markedly from the course followed for the 
general crops group as to require separate treatment. 

In terms of area embraced or number of groups affected 
by market adjustment undertakings, dairy products out- 
rank all others. At the peak (December 5, 1934 to Febru- 
ary 6, 1935) there were 50 fluid milk licenses and two addi- 
tional milk product agreements in effect. On September 1, 
1935, there were 34 licenses and two agreements. The 
course of this evolution is traced in great detail in a com- 
panion volumes of this series * as part of an analysis of the 
whole adjustment problem of the dairy industry. In order 
to round out our discussion of marketing agreements and 
licenses as a type of adjustment procedure alternative to 
the processing tax and benefit payment approach, we shall 

1 John D. Black, The Dairy Industry and the AAA. 

I96 



DAIRY PRODUCTS 197 

here undertake to set forth briefly the significant features 
of the milk marketing agreements and licenses and the 
principles and issues which they involved. Such a factual 
foundation must be laid in order that we may include dairy 
products along with general crops in our analysis of the 
results, possibilities, and limitations of the marketing agree- 
ment device which will be undertaken in the closing 
chapters of this book. 

During the time when the Agricultural Adjustment Act 
was under consideration, representatives of the dairy in- 
terests had manifested considerable doubt as to whether it 
was desirable to have themselves included among the 
groups of producers eligible under its processing tax and 
benefit payment features. They finally decided to do so but 
apparently only as a precautionary measure, their chief 
interest being directed toward seeing what advantage they 
could derive under its marketing agreement and licens- 
ing provisions. 

After the Adjustment Administration was set up, there 
was some question as to whether milk should be regarded 
as a single commodity or whether fluid milk, butter, 
cheese, evaporated milk, and other dairy products should 
each be regarded as a separate commodity. Because of the 
interrelated character of the markets for these several prod- 
ucts, it was at first proposed that several — probably six — 
national agreements or co-ordinated sets of local agree- 
ments be simultaneously developed. National agreements 
were worked out and made effective for evaporated milk 
and dry milk, but proposed agreements for butter, cheese, 
and ice cream failed of consummation. 2 The major part 
of the program of the Dairy Section of the Adjustment 

2 During March and April 1935, hearings were held in eight cities in the 
West Coast and Mountain region to consider proposed butter marketing agree- 



198 MARKETING AGREEMENTS 

Administration has been devoted to the development of 
separate fluid milk marketing agreements and, licenses for 
particular urban areas. In connection with the early milk 
marketing agreements, it was proposed that there should 
be nation-wide co-ordination through a national milk in- 
dustries board 3 composed of representatives from regional 
boards. These, in turn, were to be made up of representa- 
tives chosen from milk industry boards set up for each 
metropolitan market. In practice, Detroit was the only 
milk market for which a local industry board was ever set 
up, and the idea of a national co-ordination machinery has 
for the present at least been dropped. Even the Detroit 
board was not an outgrowth of this national co-ordination 
but came later under a new milk plan. 

Producers of fluid milk had in general been able to 
maintain their returns during the agricultural depression 
at a relatively satisfactory level as compared with those for 

ments; These did not fix the price of butter but provided differentials between 
four grades of cream and corresponding grades of butter designed to induce 
improvements in methods of production and handling and in the quality of the 
product. Though there was considerable support of these proposals on the part 
of co-operative creameries, there was a good deal of opposition from centralizers 
and the proposal has not as yet resulted in the consummation of any agreement. 
The AAA on May 25 informed interested parties that further action would be 
"limited to states which have requested federal regulation of interstate move- 
ments of butter and cream and which have already adopted or will soon adopt 
some form of state regulation for these products. . . . Conferences with state 
authorities and members of the industry will be held ... to perfect common 
rules and regulations affecting the interstate movement of butter and butterfat 
with the powers and within the jurisdiction of the federal government." 
AAA Press Release No. 2217-35. See also footnote 5, p. 301. 

3 The plan, although having many more operating units than the national 
stabilization plan for citrus fruits discussed in Chap. VIII, was essentially iden- 
tical in its general conception. The regional and national boards were to operate 
in an advisory capacity, both to the Adjustment Administration and to the 
administrative agencies set up under the local milk marketing agreements. 
The purpose was to co-ordinate the whole structure of milk prices and stabilize 
economic relations between the several parts of the industry. 



DAIRY PRODUCTS 199 

most of the staple crops. During the winter and spring of 
1932 and 1933, however, they had been rapidly losing this 
advantageous position. At the time the act was under con- 
sideration, fluid milk prices in most metropolitan areas 
were getting down to such levels that milk strikes had 
occurred at several places and were threatened in others. 
From the time the Adjustment Act was presented to Con- 
gress (March 17), therefore, certain milk producers' or- 
ganizations and distributors began giving serious attention 
to the possibilities of using agreements and licenses to sup- 
plement their previous efforts. In general, the co-operatives 
and the distributor organizations had worked out mutually 
satisfactory relations in the several markets and were 
chiefly concerned to continue this situation but at the same 
time to avail themselves of the provisions of the Adjust- 
ment Act to strengthen the price situation and protect 
themselves from the competition of unorganized producers 
and distributors. They were not disposed to follow the 
suggestion of universal licensing and the reform of market 
practices and narrowing of market spreads which had been 
advanced by certain elements in the councils of the Depart- 
ment of Agriculture. 4 

4 For example, the committee on dairy products which had been set up to 
study the possibilities of the bill during the time that it was pending in Congress 
and to make recommendations as to how it might be put into effect. It "recom- 
mended that all processors, associations of producers, and others engaged in the 
handling of dairy products or any competing product thereof be licensed. . . . 
The purpose of applying the licensing provisions would be to eliminate unfair 
practices or charges, as a result of which some economies in procurement costs, 
manufacturing costs, and distribution costs of fluid milk and cream might be 
effected, with benefits passed back to producers in the form of higher net prices. 
It may be necessary for consumers to share in the benefits of lower costs, if con- 
sumption of dairy products is to be maintained at a level that will move into 
consumption the large volume of dairy products now being produced." Report 
of the Committee on the Dairy Industry, U. S. Department of Agriculture, 
Apr. 29, 1933. 



200 MARKETING AGREEMENTS 

MILK MARKET PRACTICES AND PRICE STRUCTURE 

In order to understand the issues raised in connection 
with fluid milk marketing agreements, a few words must 
be said about the system of milk marketing which has 
grown up in this country. It represents a mechanism about 
as far removed from the direct "higgling of the market" 
which we read about in texts in elementary economics as 
anything to be found in modern economic life. It embodies 
the results of a long process of evolution in the relations 
between distributors on the one side, many of whom have 
grown to large size through the process of consolidation 
or centralization, and on the other side co-operative or- 
ganizations, which have sought to build up equally strong 
and effective agencies to conserve the producer's interest. 
The general purpose has been to effect such a structure of 
prices to wholesale and retail buyers of milk and cream 
as would promote certain desired objectives on the pro- 
ducer side and on the consumer side respectively. 

As to the producer, there was no thought that any in- 
dividual's return would or should reflect accurately the 
price paid by consumers for his product for some particular 
use to which it was put. The intention was rather to have 
such a system of payment as would furnish a group of 
dairymen the economic incentives to produce the desirable 
quantity and quality of product at places where and times 
when it could be most advantageously handled and put 
into consumption channels. As to consumers, the intention 
was to encourage consumption, keep the market outlets in 
economically sound relationship to one another, and have 
price changes come at relatively infrequent intervals. 

Such plans involve in varying degrees a segregation of 
city milksheds from the rest of the dairy industry. At its 
best, this would mean only such confining of fluid milk 



DAIRY PRODUCTS 201 

production to a certain area or to a certain group of pro- 
ducers as would insure a more thorough or more economi- 
cal compliance with desirable standards of sanitation as 
well as adequate supplies of fresh milk and cream during 
low-producing seasons with a minimum of excess milk 
during flush seasons which, though produced under high- 
cost conditions, would have to go into low-cost uses. At its 
worst, this system would mean the monopolization of the 
fluid milk market for a favored group with the pushing up 
of prices to a point where they were disproportionate to 
those received in dairy sections devoted to the production 
of butter, cheese, and evaporated milk. That is, it would 
create premiums which would more than offset transpor- 
tation differentials, expense involved in meeting sanitation 
requirements, and the cost of such seasonal equalization of 
production as is economically justified. 

Controversy has waged long and will long continue to 
wage over the question of just what constitutes a proper 
degree of segregation of fluid milksheds from the rest of 
the dairy industry and a proper system of price differentials 
to recognize the just claims of this branch of the industry 
without exploiting consumers. The fully elaborated price 
system which has been devised to meet this situation con- 
sists of two parts. 5 

First, it is sought to put milk sold in the metropolitan 
area on a "class-price" basis according to the use to which 
it is put. Whole milk, since it can be delivered to the city 
distributor only at the greatest cost, commands the highest, 
or Class I, price. Milk used for supplying fluid cream to 
city users constitutes Class II. Milk in excess of these re- 

5 For purposes of simplicity, we are speaking as though a single uniform 
practice had been developed for the various markets. As a matter of fact, the 
several markets show many local variations and represent different stages of 
evolution. 



202 MARKETING AGREEMENTS 

quirements and which is therefore diverted to low-price 
uses in the making of ice cream, to be churned into butter, 
or made into by-products constitutes the lowest or "surplus" 
use and commands a Class III price. Sometimes the system 
of classification is reduced so that milk (or milk and 
cream) makes up Class I and all other milk, Class II. 
Occasionally, also, surplus milk may be further differen- 
tiated so that the classification may recognize four or even 
Rvc classes. 6 Certain dealers may have their business so 
arranged that they can dispose of practically all their milk 
at the highest price as bottled milk. Somewhere in the city 
milk distributing business, however, a considerable reserve 
must be carried from day to day and from month to month 
if changes in consumption — some of them sudden and un- 
predictable — are to be properly met. This situation has 
introduced great conflicts and much friction in the negotia- 
tion of prices between producer associations and the several 
distributors, the bone of contention being, how shall the 
burden of carrying the market reserve be distributed ? By 
requiring all dealers to pay for milk according to the actual 
conditions of use, these difficulties are avoided. 

The second part of this price structure concerns the man- 
ner in which producers are paid. Sometimes the farmer is 
paid a "blended" price, which may represent the average 
of prices received by his particular dealer, and in other in- 
stances represents the average of a "pool" made up from 
the settlements of all distributors according to the use to 
which the different parcels of milk are put. Thus he shares 
equally as one of the group supplying this particular milk- 
shed, regardless of whether he happens to be so situated 
that the milk which he produces is all sold as fluid milk 

6 The number of classes, the location of the boundaries between them, and 
the differentials in prices of the several classes are arrived at through negotiation 
between the distributor groups and producer associations. 



DAIRY PRODUCTS 203 

or might conceivably all go to the lowest form of by-product 
use. In the most highly elaborated systems, however, the 
producer does not receive such a pool price but is paid on 
a differential basis which distinguishes between "base" milk 
and "surplus." 

This plan serves to make equitable returns to producers 
having different proportions of seasonal surplus and en- 
courages them to adjust production seasonally according 
to the demands of the market. Under this system a base 
period is established during certain low production months 
when approximately all the milk produced by the mem- 
bers is absorbed in the Class I use. For this amount of milk 
the farmer is then paid during the ensuing year at the base 
price, excess above this amount being paid for as surplus 
at a lower price. 

In practice, a variety of factors have during recent years 
caused the amount of milk which producers in the various 
milk markets wished to deliver to exceed the amount 
which the market could absorb at existing scales of prices. 
Hence the base-surplus plan gave way to a base-rating sys- 
tem under which producers were allotted percentages of 
the milk delivered during the base-making period as the 
amount for which they would thereafter be paid the basic 
price. Or, instead of being permitted to establish a new 
base each year, a system of "closed" bases was introduced, 
whereby the figure established in the previous year or the 
average of several previous years was used. Other devices, 
designed to preclude the entry of new producers into the 
given market, the introduction of a waiting period before 
a new producer could establish a base, the delimitation of 
milkshed boundaries (sometimes by agreement with 
municipal authorities as to the limits of the inspection 
area), and the like were used as means of keeping par- 



2o 4 MARKETING AGREEMENTS 

ticular metropolitan markets for particular groups of pro- 
ducers and of keeping the general level of returns above 
that of outside unorganized areas or other unorganized 
producers within the dairy region. 

If such artificial enhancement in price levels assumes any 
considerable magnitude, it inevitably leads to the attempt 
on the part of distributors to break over these barriers and 
tap cheaper sources of milk outside. 7 Equally, it leads to 
attempts of outside producers to break over these barriers 
and obtain access to the higher price market within. Nat- 
urally, there is a community of interests between these two 
parties, each tending to facilitate the effort of the other. 

Such a scheme of prices as was being worked out by the 
co-operatives bargaining collectively with the distributors 
works well enough during periods of generally advancing 
prices. But when decline of the general price structure sets 
in, trouble is encountered. The maintenance of a Class I 
price at an artificial level produces wide differentials be- 
tween it and other milk prices, increases surplus, and ulti- 
mately brings the types of price cutting which were dis- 
cussed in the preceding paragraph. This process is likely 
to continue till differentials are reduced considerably below 
what is considered normal for a competitive situation — 
that is, till returns are below the level required to keep 
producers permanently in business. Such price cutting was 
under way in important milk markets at the time the AAA 
came into being. Both co-operative milk producers' as- 
sociations and the large distributors with whom they had 

7 In some cases these "outside producers" are not located beyond the 
geographical bounds of the milkshed, but are outside the collectively bargain- 
ing group. In the Chicago area, for example, there were a considerable number 
of dairymen who had ostracized themselves from the market by opposition to 
tuberculosis testing at the time the Pure Milk Association was formed. 



DAIRY PRODUCTS 205 

sought to establish stabilized market relations turned to 
the marketing agreement device as a means of remedying 
this situation. 

The distributors felt that they could not maintain prices 
such as the producer insisted upon unless they were pro- 
tected against the price cutting of distributors who were 
able to get cheaper milk elsewhere. The producer organi- 
zations asserted that prices must be maintained or even 
advanced if their members were to survive. This could be 
done only if other producers were kept from entering the 
market with low-priced supplies. The co-operatives were 
as much concerned as were the distributors in the elimina- 
tion or regulation of unorganized dealers since it was 
through the latter that the price-cutting producer often ob- 
tained access to the market. The depression had increased 
the number of small dealers through the entry of many 
individuals who, having lost their wage or salary employ- 
ment elsewhere, sought to get at least some return from 
their time and the use of a truck or automobile by selling 
a little milk whenever they could find customers — often 
through price concessions. 8 Likewise the depression in- 
creased the number of producer-distributors. This tended 
further to increase the proportion of milk to be carried as 
surplus by the organized producers under the price plan. 9 
Hence the organized distributors and producers were 
desirous that producer-distributors be required under the 
agreement or license to share fully in this burden along 
with the organized producers. 

8 These were known variously as "sub-dealers," "peddlers," or "bobtailers." 
They usually bought their milk from pasteurizers within the sales area. Another 
type of cut-price distributing came from roadside stands and milk depots, 
generally located just beyond the reach of the city health department. 

9 Although obviously the producer-distributor would not be free from the 
necessity of carrying some sort of reserve of his own. 



206 MARKETING AGREEMENTS 

THE FIFTEEN FLUID MILK AGREEMENTS 

The very day that the Adjustment Act was signed, rep- 
resentatives from the Chicago milkshed called upon the 
Secretary of Agriculture with fairly definite proposals for 
a marketing agreement and with requests that prompt and 
vigorous action be taken to carry such a plan into effect. 
The Milk Council, Inc. (21 large dealers representing about 
80 per cent of the distribution in the Chicago metropolitan 
area), the Chicago Milk Dealers' Association (embracing 
over 100 small dealers), and the Pure Milk Association (a 
co-operative marketing over 75 per cent of the milk pro- 
duced and consumed in the metropolitan area) were the 
proponents of this agreement. They had been working to- 
gether closely in the operation of a milk marketing system 
such as has been described in the preceding pages, but its 
operation was being disturbed by the competitive activities 
of numerous small distributors and of producers within the 
territory who were not members of the co-operative, as well 
as by the competition of producers in the surrounding dairy 
products territory. 

The formulating of an agreement to meet this situation 
was a pioneer effort for the AAA staff and presented many 
difficulties to be wrestled with at the same time that the 
proponents of the agreement were urging haste to bring the 
Adjustment Administration to support the measures which 
they had been struggling to maintain in Chicago. After 
being rewritten many times, the agreement was finally ap- 
proved and became effective on August 1, 1933, together 
with a license on the same day. The agreement itself was 
brief in form, although supplemented by four rather de- 
tailed exhibits covering prices to be paid to producers, re- 
sale prices, a schedule of fair trade practices, and rules for 
control of basic production. The agreement bound the 



DAIRY PRODUCTS 207 

signatories to observe this double schedule of prices and 
the plan of marketing set forth in the exhibits. 10 

As to the wisdom of establishing both minimum prices 
to producers and resale prices for distributors, opinion was 
soon divided. The naming of consumer prices was op- 
posed by those who felt that such a policy did not give suf- 
ficient protection to the consumer's interest. It was also 
opposed on the ground that by naming both producer and 
consumer prices, the Adjustment Administration under- 
took to maintain a schedule of distributive charges, which 
in the eyes of the Consumers' Counsel and many persons 
outside the Adjustment Administration were excessive. 
Those who supported the policy were convinced that any 
practical possibility of improving returns to producers must 
start with the maintenance of prices to distributors which 
would make it possible for them to secure reasonable re- 
turns. This first step would make possible the elimination 
of the fly-by-night distributor who was selling milk below 
the prevailing rate not because he had a lower cost of opera- 

10 Dr. Clyde L. King, head of the Dairy Section of the Adjustment Admin- 
istration, was a widely informed and thoroughly seasoned student of the fluid 
milk market, having acquired a wealth of practical experience as arbitrator of 
milk disputes in the principal markets of the country from the days of war-time 
food control down to the time when he accepted his position in the Adjustment 
Administration. In July 1933 he stated the policy with reference to milk mar- 
keting agreements as follows: "The Administration is going to get pre-war 
parity by trade agreements that will protect the market from demoralizing 
forces. To this end licenses will be issued. ... If the granting of licenses means 
anything, it means if anyone buys from the farmer at a price other than that 
named in the license as a minimum price to the producer, or buys on any plan 
other than prescribed in the agreement, such a person is subject to the heavy 
penalties prescribed in the act. Now these milk marketing agreements will 
provide for the elimination of practices that tend to disrupt the price structure. 
Reducing marketing expense through abolishing unfair trade practices and 
encouraging such marketing methods and practices as will result in a better 
product and therefore in increasing consumption I hope ought to bring milk 
to the consumer's doorstep at the least cost and at a price to producers that will 
bring pre-war parity, at least as soon as marketing conditions thus assisted will 
permit." American Co-operation, 1933, pp. 289-90. 



208 MARKETING AGREEMENTS 

tion or higher level of efficiency but because he was getting 
cheap milk either within the milkshed or from outside. 
The price-cutting tactics of such a dealer sometimes re- 
sulted in his own insolvency and non-payment for milk 
which producers had shipped to him. 11 

Proponents of the agreement with its two price schedules 
looked to it as a means of eliminating price-cutting dis- 
tributors and they were ready to defer for a time the ques- 
tion of whether, freed of this type of competition, the dis- 
tributors would be in a position to accept a revision of 
their margins. If it should develop that they were not 
willing to accept such adjustments on a voluntary basis 
through the process of negotiation, there was of course the 
question of how far such action could be forced under the 
powers covered by the license. This is an issue which has 
been implicit in much of the marketing agreement and 
licensing activity of the Adjustment Administration. We 
shall return to it in the next chapter. 

The resale prices named in the Chicago agreement 
covered 19 items embraced in a wholesale price schedule, 
a price schedule to stores, and a retail price schedule. These 
schedules carried into effect the level of prices then recog- 
nized by agreement between the Pure Milk Association and 
the major distributors. A majority of the other agreements 
followed the Chicago pattern in specifying retail prices, but 
the Knoxville, New Orleans, Des Moines, and Boston 

11 A further reason for including resale prices in milk marketing agree- 
ments grew out of the fact that a considerable amount of fluid milk is sold 
direct by producers either as individuals, as dairy companies which operate 
farms as well as delivery wagons, or by producers' co-operatives which actually 
sell milk to consumers rather than being mere bargaining associations. Since 
in these cases there is no producer price which can be clearly differentiated from 
the distributor charge, the simplest way of assuring that such milk would be 
on a competitive equality with that handled through distributors who were not 
producers would be to establish the sale price of the product. 



DAIRY PRODUCTS 209 

agreements named both maximum and minimum retail 
prices, the range between them being 1 cent per quart. 
This was expected by some persons to afford dealers a cer- 
tain amount of flexibility, such as making possible a dif- 
ferential between the cash-and-carry price at stores and the 
delivered price from wagons. Such a differential had been 
a matter of great controversy in formulating the agree- 
ments, partly because of the practice of certain chain stores 
to use milk as a "loss leader." Besides the leeway of 1 
cent provided in the four agreements just mentioned, the 
Baltimore agreement named a maximum price but no 
minimum, thus permitting a lower store price. The Chi- 
cago agreement and six other early ones did not provide 
a store differential. 

The producer price named in the Chicago agreement 
was $1.75 per 100 pounds of milk of 3.5 per cent butterfat 
content. 12 This was no advance of the rate then obtaining 
in the market, 13 and so the gain to the producer was largely 
that the agreement undertook to make all dealers actually 
pay the rate then nominally in force. It did not accede to 
the request of the producers' representatives that the price 
should be immediately advanced to $2.00 or above. On 
November 3, however, the price was advanced to $2.10. 

The undertaking to maintain any specified schedule of 
producer prices or to advance them raises the question as 

12 This rate was based on country plant deliver}' at the 70-mile zone, about 
equivalent to a $2.10 city price. Prices under the other milk agreements were 
on a city-delivered basis — $1.85 in Detroit, $1.95 in Des Moines, and $1.95 in 
St. Louis; (for 4 per cent milk) $2.35 at Philadelphia, and $2.40 at Knoxville 
and New Orleans; and $3.02 at Richmond for 3.7 per cent milk. These prices 
proved to be high enough to aggravate the difficulty from outside milk seeking 
to gain access to the respective markets and thus enhanced the difficulty of 
enforcement. 

13 However, both producer prices and resale prices had been advanced dur- 
ing May, presumably in anticipation of the strengthening effect of the agree- 
ment. 



210 MARKETING AGREEMENTS 

to the mechanism by which this was to be accomplished. 
No positive and direct-acting devices for curtailment of 
production or such withholding of shipments as we have 
observed in the special crops agreements were provided. 
Great reliance appears to have been placed on the ability 
and willingness of the consumer market to pay a higher 
scale of prices if only all channels of distribution were 
organized for the maintenance of such a higher price. The 
situation in this regard appears to have been essentially 
similar to that which we have already discussed in con- 
nection with the approach of Administrators Peek and 
Brand to the distributors of other types of agricultural 
commodities through the Food Trades Advisory Council, 
and the specific drives for higher prices of canning crops 
in the absence even of an agreement (page 179) or of pea- 
nuts and tobacco under the special types of agreements 
used for those commodities. In the latter case, of course, 
the undertaking of the processors to maintain the higher 
level of prices was conditioned upon assurances that a 
production control program would be forthcoming in sub- 
sequent years. 

There was also at this time a rather prevalent belief that 
the New Deal would promptly produce such a degree of 
general recovery as to increase the ability and willingness 
of consumers to pay such prices for farm commodities as 
would make parity prices promptly possible. Dr. King, 
addressing the American Institute of Co-operation at 
Raleigh on July 26, 1933, said: 

I hope we may see pre-war parity of milk prices before next 
January, provided of course that the price of other farm products go 
up so that farmers will have alternatives other than milk production. 
In any case, we must be ready to carry on in a permanent way what- 



DAIRY PRODUCTS 211 

ever good may come out of this New Deal, in which I believe 
strongly. 14 

The ultimate reliance on production control was recog- 
nized, however, as is indicated at a later point in the same 
address, where he said: 

We would not be doing our duty in the milk trade agreements 
unless we put in all of them a provision that there must be some 
plan for controlling and decreasing production. Any dairyman 
who knows the facts knows that we are now within i per cent 
of the exporting of dairy products. 15 

The type of production control placed in the Chicago 
milk marketing agreement (and others), however, was 
not a restriction upon the total amount of fluid milk which 
the dairyman might produce but upon the amount which 
would be permitted to share in the fluid milk demand of 
the market covered by the agreement. Surplus above this 
amount was outside the control and would have to be dealt 
with in the market for milk used in manufacture as part 
of another dairy adjustment problem. 

The attitude of the Adjustment Administration was 
clearly set forth in connection with the announcement of 
the signing of the agreement: 

With cut-throat competition outlawed, with dairy production 
measurably regulated by differential prices, and with consumers 
protected by an equitable price policy arrived at under federal 
supervision, the dairy industry has a chance, as the Europeans phrase 
the matter, to rationalize itself in the most thoroughgoing man- 
ner. ... In general, agreements will set up production areas within 
which individual dairymen will have specified quantities of milk 

14 American Co-operation, 1933, p. 286. 

15 The same, p. 290. This point had also been urged by a special committee 
on production control appointed at a national dairy conference held in Wash- 
ington on June 26. AAA Press Release No. 7-34. 



212 MARKETING AGREEMENTS 

that they may sell to fluid milk distributors at specified prices. . . . 
In many instances the milk areas delimited by the agreements 
coincide with those established by boards of health for the sanitary 
control of milk supplies. . . . Production control of some form will 
be insisted on in all fluid milk markets. . . . The agreements regulate 
the individual dairyman's total production, through the quantity 
that he may sell at fluid milk prices. Excessively high prices for 
fluid milk would tend to produce an oversupply of surplus milk 
for manufacturing. . . . For the present, the Administration wishes 
to ascertain what effect on production will be exercised by the dif- 
ferential price system. With surplus milk bringing lower prices 
than base milk, the producers will have, it is hoped, a constant in- 
centive to exercise moderation. Should they not do so, some other 
method would be tried or prices would be lowered. 16 

Thus the taking over into the agreements of the class- 
price and base-rating system already in vogue in Chicago 
and most of the other 14 cities for which milk marketing 
agreements were made effective 1T put a very elastic type 
of production control into operation. Several other barriers 
against excessive supplies were also included. First was the 
delimitation of the milkshed or "producer area" included 
in the "definitions" section of the agreements. Boundaries 
were in part determined by inspection areas of the respec- 
tive metropolitan health authorities. This method suggests 
one type of control mechanism both in the interest of 
economy of operation and of sound price economics which 
might be made quite rigid in case the agreement and license 
provision should subsequently be put to use as a thorough- 
going agency of milk industry regulation. In some cases 
the area followed carefully the specified metes and bounds 
of a previously established supply zone. It is not apparent 

16 AAA Press Release No. 204-34. 

17 Besides the cities which already had such a plan, three were introduced to 
the system through the AAA agreements. It was not incorporated in the agree- 
ments of Des Moines or the Twin Cities, whose milksheds can hardly be 
differentiated from the great dairy manufacturing territory adjacent. 



DAIRY PRODUCTS 213 

in any case that previously tributary territory was cut of?; 
in some instances at least (where the boundaries run with 
county lines) they were so loose as to permit further 
expansion. 

The Chicago agreement permitted the entry of new 
producers into the market and gave them a production 
base deemed to be equitable in relation to that of previous 
producers. The AAA's announcement of policy at the time 
said: 

The allotment of production quotas to individual dairymen rests 
on the general rule that all those who have supplied the market 
previously may continue to do so. New producers may enter the 
field, on the same basis as did the producers previously in the mar- 
ket. It would be obviously inconsistent to regulate the production 
of established dairymen, without reasonably restricting new pro- 
duction. 19 

The agreement provided that the base for new producers 
should be established during the first 90 days in which they 
sold their milk in the Chicago metropolitan area but should 
be equal to only 60 per cent of their average daily produc- 
tion during that period. All but three subsequent agree- 
ments contained provisions making it necessary for any 
new producer who wished to enter the market first to ob- 
tain from the administrative authorities a "certificate of 
necessity" permitting him to sell in that market and to 
establish a production base according to which settlements 
would be made. 

18 That they were regarded as restrictionary is evidenced by contemporary 
statements. The attorney of the New England Milk Producers' Association said: 
"Plans for control of production are made a part of the marketing agreements. 
The milkshed for a particular market is defined as is also the distribution area 
for a particular market." American Co-operation, 1933, p. 231. See also the 
AAA statement on p. 212, and King's statement in F. F. Lininger, Dairy 
Products under the Agricultural Adjustment Act, pp. 42-43. 

19 AAA Press Release No. 204-34. 



2i 4 MARKETING AGREEMENTS 

Besides the producer price and resale price provision, 
the milk marketing agreements all incorporated a section 
dealing with fair trade practices designed to protect dis- 
tributors against devices such as discounts, rebates, free 
services, advertising allowances, or free milk, which would 
constitute evasions of the price schedule even while it was 
being nominally observed, or other practices whereby one 
distributor might seek to gain trade at the expense of 
another. 

As to administration, the marketing agreements did not 
set up control committees of the type which we have been 
discussing in preceding chapters. In the Boston marketing 
agreement a market director was provided and an arbitra- 
tion committee consisting of one representative of pro- 
ducers, one of distributors, and a third member elected by 
these two. In other agreements, there was a general provi- 
sion permitting the contract producers and contract dis- 
tributors to set up such agency as they might deem neces- 
sary to receive complaints, adjust disputes, and in general 
supervise the carrying out of the agreement. As a matter 
of fact, this provision did not lead to the setting up of any 
new administrative machinery where existing co-operatives 
and distributors' associations had already evolved methods 
for carrying out such arrangements as they had been able 
to arrive at on the basis of private negotiation. These ar- 
rangements could be continued effectively and extended 
to embrace the terms of the agreement so far as they were 
concerned. They were woefully inadequate, however, as 
to other parties brought within the terms of the license 
who were the ones most likely to seek to evade it. 

One important task of any administrative agency was to 
furnish to the non-co-operatives certain services which 
were performed by co-operatives and their members and 



DAIRY PRODUCTS 215 

financed through a check-off system. Co-operatives were 
unwilling that non-members be exempt from such a charge, 
and it was also desirable, if the marketing agreement were 
to be made effective, that these services be performed, not- 
ably verifying dealers' reports of the class of use into which 
their milk went, the checking of weights and butterf at tests, 
and the guaranteeing of shippers against loss owing to the 
failure of any dealer to settle for milk purchased on a 
credit basis. If non-members were exempt from such a 
charge, it would in effect give them a differential advan- 
tage in price since they got a large part of the benefit of 
these services anyway. It had been a cause of complaint 
in the past that they avoided payment of their share of the 
cost of such services although sharing in the benefits. If 
market practices were to be brought to a uniformly high 
standard for all dealers under the AAA agreements, it was 
essential that weights and tests of all dealers be checked and 
all payments guaranteed. But the task of rendering these 
services and the task of collecting the appropriate service 
charges on all milk imposed serious difficulty on the newly 
formed administrative agencies. In cities where there were 
local branches of the National Dairy Council, this agency 
was ordinarily designated as the one through which this 
function was to be performed. In Chicago it was known 
as the Milk Foundation, Inc. Another difficulty came in 
connection with the collection of equalization payments 20 
from dealers in cities where an equalization pool was set up. 
Most of the equalization funds have been far in arrears. 
There was much opposition to the agreements on the 
ground that they constituted mutually accepted deals be- 
tween certain distributor organizations and producer as- 
sociations and that no adequate opportunity for hearing 

20 See John D. Black, The Dairy Industry and the AAA, p. 112. 



216 MARKETING AGREEMENTS 

had been given to many of the smaller parties whose in- 
terests were involved. In view of these claims, the agree- 
ments at Chicago, Philadelphia, and Boston were re-opened 
to public hearing and considerable further light was shed 
upon the complexity of the issues involved and the difficul- 
ties of getting these licenses on a fully workable basis. The 
situation had become further complicated by sharp declines 
in the price of butter — the foundation of the whole dairy 
structure. Although the government undertook a butter 
purchase operation, results upon the market were far from 
satisfactory to milk producers. 

ABANDONMENT OF AGREEMENTS 

Complaints of violations in the Chicago milkshed began 
to come in from several sources within a few days after the 
license was made effective, and much the same story was 
repeated in other markets. First, the attempt to maintain 
the established schedules of producer and resale prices re- 
sulted in evasions by small dealers who could maintain 
themselves in business in competition with the large dis- 
tributors only by making concessions in price to buyers 
and by securing their milk from producers at prices lower 
than those permitted under the license. 21 Since such sources 
of cheaper milk were available, this type of violation was 
frequent. Second came violations on the part of producer 
distributors who were tempted to handle the business under 
the price protection offered by the license schedules of price. 
Third was non-compliance with the price schedules on the 
part of roadside stands and, fourth, that of chain stores 
v/ho insisted on a lower cash-and-carry price. 

21 Most of the evasions which became the basis of the enforcement actions 
related to failure to maintain resale prices. Evidence seems to indicate, how- 
ever, that in the majority of cases where there was cutting of resale prices, the 
cutting was in part at least passed on to producers. 



DAIRY PRODUCTS 217 

In general, the signatories insisted that enforcement was 
both practicable and desirable if the Adjustment Admin- 
istration would only move vigorously toward that end. 
The office of the General Counsel, however, was loath to 
come into court with a series of cases of dubious defensi- 
bility, thereby threatening the legal position of the whole 
Adjustment Act. 22 Many of those who had entered into 
agreements undoubtedly felt at the time that the license 
would provide a quick and effective means of weeding out 
every competitor who failed to follow the provisions of the 
agreement to the letter. In fact, however, a license could be 
revoked only after hearing and the presentation of evidence 
according to procedures almost as exacting as those of a 
lawsuit. Furthermore, the alleged violators had resorted 
to the courts to defend their actions and to attack the terms 
of the license which had been imposed upon them. 23 From 
the time the first agreement was put into effect up to the 
end of 1933, several hundred orders were issued to milk 
distributors 24 to show cause why their licenses should not 
be suspended or revoked. The first actual revocations oc- 
curred on November 13 and covered dealers at Ephrata, 
Pennsylvania and Hagerstown, Maryland. 

Before these legal issues could be decided, the Chicago 
and New Orleans agreements were cancelled as of Decem- 
ber 31 and February 1 respectively, both at the request of 
the signatories. Following this, the remaining 13 agree- 
ments were terminated by the Secretary's order as of Feb- 

22 See Chap. XII. 

2,3 The Chicago license was almost immediately brought to a court test by 
the action of two dealers who sought to enjoin the Secretary of Agriculture. 
On August 29 a decision was handed down which upheld the constitutionality 
of the act and declared the regulations and license reasonable and valid. 

24 Most of these violators had failed to maintain the schedule of resale 
prices. 



218 MARKETING AGREEMENTS 

ruary i. Thereafter the Adjustment Administration pro- 
ceeded with a policy of developing such an arrangement 
for each market as it believed suitable through the revision 
of existing licenses rather than waiting for local interests 
to negotiate agreements which when put in form accept- 
able to the Adjustment Administration would be imposed 
by license upon the other distributors and thence upon the 
producers of the given territory. The Adjustment Admin- 
istration thus accepted the responsibility of developing an 
arrangement for each market such as would conform to the 
new policy rather than permitting certain groups to formu- 
late an agreement which would then be imposed by license 
upon the other distributors and through them upon the 
producers of the given territory. 25 

NEW POLICY AND MORE LICENSES 

In notifying the 13 markets whose agreements were to 
be terminated on February 1, the Adjustment Administra- 
tion made it plain that it would "exert every effort to sus- 
tain the present agreement prices to producers" but that 
nothing further would be done to enforce the retail prices 
stipulated in the license. Producers and distributors ap- 
peared to feel that the licenses afforded them a consider- 
able degree of protection, even though not fully enforced, 
and to be desirous of continuing them pending the time 
when new marketing agreements could be worked out. 

25 A conference in which the staff of the Dairy Section of the Adjustment 
Administration discussed issues of policy with the dairy industry specialists from 
various agricultural colleges was held in Washington during the first week of 
January 1934. J. H. Mason of the Des Moines Co-operative Dairy Marketing 
Association succeeded Dr. King as head of the Dairy Section on Dec. 16, 1933. 
This was a temporary appointment pending the time when Mr. Mason should 
take up his duties as head of the Bank for Co-operatives at Omaha. On Mar. 
10, 1934, A. H. Lauterbach, formerly manager of the National Cheese Federa- 
tion, took over the work. He resigned on July 1, 1935, and was succeeded by 
E. W. Gaumnitz, formerly assistant chief. 



DAIRY PRODUCTS 219 

Hence all of the licenses, with the exception of Chicago, 26 
were continued in force. When proposals for new agree- 
ments proved unacceptable to distributors, licenses came to 
be the exclusive machinery for carrying out the fluid milk 
program. 

Following the drafting of a new license for Chicago, the 
Adjustment Administration proceeded with the revamping 
of licenses for other markets as well as the completion of 
those already pending for cities which had not had mar- 
keting agreements. Five new licenses were made effective 
in February, seven in March, six in April, three in May, 
four in June, twelve on July 1, and scattered ones there- 
after until by the end of the year 1934 milk marketing 
licenses under the new policy covered 50 milksheds in all 
parts of the country. Since it was necessary not only to 
adapt each license to the peculiar situation in the market 
to which it was to be applied but also to adjust to changing 
conditions, the process of amendment of these licenses con- 
tinued throughout the year and some of them underwent 
considerable modification even after being recast to con- 
form to the major features of the new policy. 

Besides abandoning the practice of naming resale prices, 

26 The action in Chicago was determined by the peculiar difficulties of that 
market. With the opening of the new year, dealers attempted to reduce the 
price for Class I milk to $1.40 per hundredweight. This precipitated a milk 
strike which became effective on January 6 and lasted five days, until a truce 
was arranged by the municipal authorities. In order that the Pure Milk As- 
sociation might have a free hand in attempting to get, through its own efforts, 
a price higher than the government was ready to establish, the Adjustment 
Administration on January 8 terminated the license. The government was 
ready to issue a new license immediately on the basis of a price of $1.70 per 
hundredweight and to undertake to enforce it, but was not willing to accept a 
price established by the Mayor's arbitration committee or any other agency 
and take the responsibility for enforcement. It was not until February 5 that 
a price basis mutually acceptable to the Adjustment Administration, to the 
producer association, and to the Chicago distributors could be arrived at and 
embodied in a new license. 



220 MARKETING AGREEMENTS 

the new policy promised a shift from the mere marketing 
control approach to a production control approach to the 
whole fluid milk problem. "Fluid milk marketing agree- 
ments and licenses," the AAA stated, "will be used in a 
modified form and as a supplement to the general program 
of dairy production adjustment. Fluid milk markets have 
been threatened with demoralization because of acute 
price-cutting due to excessive supplies. . . . Maintenance of 
high retail prices to consumers, even with the enforcement 
powers of the Administration, has proved impossible in 
such circumstances." 21 Acting on the belief that prices in 
the butter, cheese, and other manufactured products mar- 
kets would have to be raised through a program of produc- 
tion control, or that milk prices would have to be allowed 
to establish an equilibrium with these prices on a some- 
what lower level than that then obtaining, the AAA 
worked out the details of a production control program 
based on a processing tax and benefit payments to dairy- 
men who agreed to reduce production by 15 per cent. 

Before discussing the outcome of this move, we need to 
note certain other features of the new policy. There was 
a turning away from the idea of using fixed geographic 
boundaries to delimit a milkshed within which it was at- 
tempted to maintain an artifically higher price for a pre- 
ferred group of fluid milk producers. As against this 
it was insisted that the prices within the metropolitan 
areas should be economically adjusted according to trans- 
portation charges, extra cost of meeting health require- 
ments, and any other justifiable differentials. Thus the 
market boundaries would establish themselves on an 
equitable economic basis so that the returns from fluid 

27 AAA Press Release No. 1 543-34. These views were very fully elaborated 
by Secretary Wallace in an address at Madison, Wis., on Jan. 31, 1934. AAA 
Press Release No. 1727-34. 



DAIRY PRODUCTS 221 

milk use and use for manufacturing would be in balance 
at the boundary of the milkshed. If this were accom- 
plished, the use of the base-rating plan as a device for re- 
stricting the number of those who might participate in 
the higher price market would of course disappear. At 
first, the proponents of the new policy were disposed 
toward the elimination of the base-rating system not only 
in these restrictive manifestations but also as used for its 
original purpose of equalizing seasonal supplies. With 
the progress of time this position was moderated, and the 
base-rating plan was abandoned in only one or two of 
the licensed areas. 

There was also considerable revamping of administra- 
tive arrangements, which put a responsible appointee of 
the Adjustment Administration in each license area as 
market administrator and proposed to supplement his 
activities by the setting up of an actively functioning local 
committee, supervisory in character and designed to have 
representation of the public as well as the producer and 
distributor groups. The introduction of a market ad- 
ministrator system contributed toward the better effectua- 
tion of the terms of the licenses. The task of such a man, 
however, is one of extreme difficulty and the finding of 
adequate personnel even for 50 markets has proved well- 
nigh impossible. Likewise, the development of repre- 
sentative and helpful local committees made almost no 
progress. While it was asserted that a more active par- 
ticipation of local interests in the formulation of the terms 
of licenses would be sought, the new licenses were in fact 
more nearly imposed from outside than were the old. 
This was especially true of the early licenses under the 
new policy. 

On March 21, the production control plan was an- 



222 MARKETING AGREEMENTS 

nounced 28 — to be submitted to the dairy producers of 
the country in a series of regional conferences. In pre- 
senting it to such a meeting at Philadelphia on April 2, 
1934, Secretary Wallace said: 

. . . We have sought from the first to help the fluid milk farmers 
with marketing agreements and licenses establishing prices. We 
have found after experiment that the marketing agreements and 
licenses for the fluid milk regions were powerless to maintain fair 
prices to farmers if the general dairy market dropped out from 
under them, leaving them without support. This was because the 
pressure of unlimited supplies of milk from surrounding surplus 
regions forced fluid milk prices down. Of course, because of 
advantages of location, costs of handling, sanitation, delivery and 
other charges, fluid milk prices normally are higher and should be 
higher than that of milk sold for manufacturing. But within 
regions there is some normal relationship. And with experiment 
our dairy people have felt the need for controls over volume to sus- 
tain the general dairy industry, including that part of it engaged 
in fluid milk production. 

All these reasons impelled us to offer the dairy industry proposals 
which we thought might reasonably be considered in the light of the 
existing situation and that which may be in prospect. We thought 
it might be wise to put a restraining influence upon production, so 
as to retard it to about the seasonally reduced levels of the past few 
months. We propose to permit the dairy farmers to organize them- 
selves into county production control associations, and with financ- 
ing by processing taxes to pay benefit payments to those agreeing 
to co-operate. We believe that, if adopted, the plan has flexibility 
enough to permit future expansion of production in step with any 
increase in consumer purchasing power which may later take place. 
Adoption of the plan is a matter for the dairy farmers to decide after 
adequate discussion of this and other possibilities. 29 

Numerous meetings were held for the discussion of this 
proposal, but no such aggressive attempt was made by the 

28 AAA Press Release No. 2175-34. 

29 AAA Press Release No. 2266-34. 



DAIRY PRODUCTS 223 

AAA to "sell" it to the producers as had been made in 
the cotton, wheat, and corn-hog programs. A great deal 
of opposition developed and, in the end, the dairy pro- 
duction control proposal was dropped. Thereafter, the 
efforts of the Adjustment Administration in this field 
were devoted to the process of further revising licenses al- 
ready in force and of completing and putting in effect li- 
censes for additional markets in conformity with the new 
policy, undergoing such modification as it did in the 
process of time. 

The process of evolution was influenced also by the 
trend of judicial decisions being handed down in cases 
under the Agricultural Adjustment Act and the National 
Industrial Recovery Act. Although upheld in several 
minor courts, there were also a number of adverse de- 
cisions (see Chapter XII, pages 276, 279, 285). The courts 
in the latter cases have held that in many, although not 
all, of the markets covered by licenses, business is intra- 
state in character and thus not within the regulatory 
power of the federal government. Second, they have held 
that the purposes for which licenses were authorized in 
Section 8 (3) are not co-extensive with the purposes for 
which marketing agreements are provided by Section 8 
(2) but must be limited to matters covering trade prac- 
tices which tend to lower or prevent the raising of pro- 
ducers' returns. Finally, the decision of the Supreme 
Court in the Texas oil case under the NRA code authority 
by implication raised a question as to whether the pro- 
cedures followed by the Adjustment Administration in 
connection with marketing agreements and licenses 
would be held valid in the higher court. This doubt was 
further increased by the adverse decision of the United 



224 MARKETING AGREEMENTS 

States Supreme Court in the Schechter case under the live 
poultry code. 30 

In several of the markets, violations increased to large 
proportions and licenses became virtually inoperative in 
the light of unfavorable court decisions. As a result, a 
series of cancellations began early in February which by 
July had removed 16 licenses from the active list. Many 
of these involved cities in which the interstate character 
of the business was most seriously in question, such as 
Baltimore, Indianapolis, Oklahoma City, Fort Worth, and 
Los Angeles. One new license (Tucson, Arizona) be- 
came effective April 16, and efforts were then under way 
to work out the final details of a workable arrangement 
for a few other markets. 

Meanwhile, however, the AAA had come back to Con- 
gress with various proposed modifications of the law in 
the form of perfecting amendments designed both to 
permit procedures which experience had indicated were 
desirable and to meet difficulties revealed in the process 
of adjudication or implied by the position of the Supreme 
Court in the Schechter case. Inasmuch as the drafting of 
new agreements or the revision of the old will have to be 
in conformity with the amended act (approved Aug. 24, 
1935), the last few months have been a period of marking 
time or indeed of some recession owing to difficulties of 
enforcement or voluntary co-operation in the face of a 
highly ambiguous legal situation. Under the amended 
law, it would seem that we could expect a process of set- 
tling down in the somewhat curtailed area to which ef- 
forts are now confined. It seems probable that a few 
even of the 34 agreements in effect on September 1 may 
be terminated shortly. 

30 See p. 279. 



DAIRY PRODUCTS 225 

There has been a general disillusionment on the part of 
those who assumed that any arrangement desired by a 
dominant group in the market could be imposed on the 
rest and made effective. It has become increasingly clear 
that unless the provisions of a license are not only eco- 
nomically sound but essentially acceptable to a very large 
percentage of both producers and distributors, and rea- 
sonably well supported by public sentiment, it is use- 
less to expect enforcement. The situation is not essen- 
tially different from that which arose in the aggressive 
period of development of commodity marketing associa- 
tions in the early 20's. Many large co-operative associa- 
tions had "legally binding contracts" whose terms were 
specifically authorized in minute detail in special statutes 
and had an almost unbroken line of favorable decisions 
in both lower and appellate courts, yet they proved un- 
enforceable as a practical matter. This was simply be- 
cause the number of persons who found it to their ad- 
vantage to breach their contracts was so large that the 
mere labor and cost of policing, litigation, and securing 
compliance with court orders or judgments imposed an 
impossible burden. 

It would seem probable that the program in its further 
development under the amended act may become the 
agency through which a process of economic and social 
education can be carried on which will evolve arrange- 
ments in the different markets which will be largely self- 
enforced because they have grown out of the experience 
of the men who are parties to them. When this is done, 
the terms of the license become a marketing agreement 
in a very direct and effective sense and not in the Pick- 
wickian and trouble-breeding sense which characterized 
the 15 agreements of 1933. Once this condition can be 



226 MARKETING AGREEMENTS 

arrived at through the machinery of a license, the results 
should be put in the form of a marketing agreement to 
be signed by the parties who have helped to evolve the 
terms, thus evidencing their good faith and estopping 
them from subsequent evasion of the terms mutually 
agreed upon. 

EVAPORATED AND DRY MILK AGREEMENTS 

It was originally contemplated that agreements national 
in scope should be worked out for dry milk and evapo- 
rated milk and for butter, cheese, and ice cream. Pro- 
posals were received and public hearings held on national 
agreements for ice cream and butter respectively. There 
were also suggestions for agreements covering several 
types of cheese and informal conferences with these in- 
terests, but no more tangible developments. 

Proposals for a marketing agreement covering evapo- 
rated milk manufacturers were advanced early and pre- 
sented vigorously because of the heavy and increasing re- 
ceipts of milk at evaporating plants in the face of heavy 
storage stocks. This situation had fostered the develop- 
ment of competitive practices which were regarded as 
unfair and it was sought to stabilize marketing conditions 
through an agreement under the Adjustment Administra- 
tion. This agreement (effective September 9, 1933) was 
between the Secretary of Agriculture and 36 manufac- 
turers of evaporated milk (95 per cent of the product), 31 
"and by and between each of the manufacturers one with 
the other" (a form since discarded in the practice of the 
Adjustment Administration). It bound the manufac- 
turers to observe a schedule of minimum prices to pro- 
ducers set forth in a detailed exhibit attached to the agree- 

31 The remainder was represented by five small firms, two of which sub- 
sequently signed. 



DAIRY PRODUCTS 227 

ment. These prices were adjusted according to the six 
manufacturing areas and were on a sliding-scale based 
on butter and cheese quotations. The second exhibit pro- 
vided two schedules of maximum and minimum prices at 
which manufacturers would sell the finished product. 32 
One schedule covered the Far Western states (with ad- 
justments for the several states on account of freight rate 
differences) and the other the rest of the country. A third 
exhibit set forth trade practice rules designed to prevent 
evasion of the spirit of the price schedules or other unfair 
competition. 

Administratively, the evaporated milk agreement was 
to be largely self-enforced by the signatories themselves 
through a "manufacturers' committee" which should ap- 
point and direct a managing agent subject to the approval 
of the Secretary of Agriculture. Except for the fact that 
three of the producers were co-operatives, the only con- 
nection of producers with this agreement was through a 
producers' committee nominated by the National Co-op- 
erative Milk Producers' Federation and "such other pro- 

32 "Maximum and minimum wholesale prices, 15 cents [per case] apart, 
were specified by the agreement, the former technically 'to protect the con- 
sumer,' the latter to prevent unfair price cutting. Actually this spread was 
provided to allow unadvertised brands to be sold for 15 cents less than adver- 
tised brands. This merely perpetuated a development within the industry. 
The smaller manufacturers had been able to make sales only by underselling the 
makers of the advertised brands. Until 1932-33 they had commonly under- 
sold by as much as 25 cents. But at that time the larger manufacturers had 
begun to meet these cuts and a price war had developed, with the result that 
the spread almost disappeared for a time. Not all of the smaller manufacturers 
were satisfied with the 15-cent spread set up by the agreement. . . . Several 
companies have since threatened to withdraw unless the spread is widened. 
The Dairy Section has made an analysis of the effect of this spread upon the 
relative volume of the business in advertised and unadvertised brands, but the 
results are not conclusive. Apparently the larger processors have consistently 
sold their advertised brands at the maximum price; but some of them have 
shifted more milk into unbranded or 'second label' products." Black, The 
Dairy Industry and the AAA, pp. 364-65. 



228 MARKETING AGREEMENTS 

ducer agencies not members of said Federation as shall 
sell milk to the manufacturers." This committee was 
given an advisory role with reference to the application of 
the formula used in establishing prices paid to producers. 

No license was issued in connection with this agree- 
ment. Some administrative difficulties of enforcement 
were encountered, but with the support of the Adjustment 
Administration a reasonable degree of compliance was se- 
cured and the agreement operated successfully during the 
closing of 1933 and through most of 1934. Evaporated 
milk prices showed a marked increase as soon as the pro- 
ducers got together to formulate the agreement and these 
advances were maintained after the agreement was put in 
force. 33 How much of this advance is to be attributed to 
the agreement it would be impossible to state. On Jan- 
uary 10 this agreement was amended to increase the maxi- 
mum limits of the schedule of wholesale prices by 20 cents 
per case and to eliminate certain points at which sur- 
charges could be added to the existing schedule. 

This amendment was to remain in effect only until 
January 31 or such extended time as might be necessary 
for the preparation of a new marketing agreement. This 
new agreement was tentatively approved by the Secretary 
of Agriculture on March 20 and submitted to the industry 
for signing. Its principal change consisted in substitut- 
ing the posting of open prices in lieu of the maximum and 
minimum price schedules provided in the old agreement. 
It also provided for check testing and weighing of milk 
by producers' representatives and the use of licenses if de- 
sired by the industry. It was signed by only about 30 per 
cent of the producers, and several extensions of time were 

33 Non-signers created some difficulty by underselling and there was also 
some violation by signers. Enforcement proceedings were begun in a few cases 
but all were disposed of without resort to litigation. 



DAIRY PRODUCTS 229 

granted in the hope that more general support could be 
secured. During March and April it was signed by other 
manufacturers, thus bringing the total up to 50 per cent 
by number and 75 per cent by volume, but several of the 
new signatories introduced provisos which were "not in 
line with the policy or position of the Administration or 
not deemed essential to the completion of the agree- 
ment." 34 

Since the Adjustment Administration was not willing 
to institute such an agreement, with its added license re- 
quirement, unless it had the approval of a majority of 
manufacturers, an order was issued on May 18 termi- 
nating the old evaporated milk agreement as of May 31. 
Most of the manufacturers had regarded the agreement 
as having a highly desirable stabilizing influence and, 
when faced by the alternative of losing the agreement 
altogether, they met in Chicago on May 22 and came to 
an accord 35 so that the new marketing agreement and 
license were made effective by the Secretary on June 1, 
1935. Besides the substitution of open-price posting 
in lieu of maximum and minimum schedules for the 
finished product and the addition of a license, the new 
agreement somewhat increased minimum producer prices 
in the Western, Northwestern, and California areas. 

The situation with reference to the dry milk industry 
was in general similar to that of evaporated milk manu- 
facturers, and the agreement followed much the same 

34 AAA Press Release No. 2991-35. 

35 "In addition to the demand for manufacturers to continue the agreement 
and reinforce it by a license, the officers of the producers' committee under the 
agreement declared in a statement to the Agricultural Adjustment Adminis- 
tration that cancellation of the agreement without replacement with another 
one would throw the industry into a very dangerous condition and that in such 
a case the producers would probably be injured considerably." AAA Press 
Release No. 2237-35. 



2 3 o MARKETING AGREEMENTS 

lines. Co-operatives occupied a considerably larger place 
among the manufacturers of this product and thus se- 
cured fuller representation through the manufacturers' 
committee which was provided. No schedule of pro- 
ducers' prices was provided, since dry skim milk is en- 
tirely a by-product. 

The outstanding feature of the agreement was that it 
established an "open-price" arrangement under which 
"each manufacturer agrees to file with the Secretary and 
with the manufacturing agent ... a complete list of his 
selling prices," which may be modified from time to time 
as he desires, subject to disapproval by the Secretary. The 
price structure, however, is to be covered by an elaborate 
system of classification of prices and price differentials 
for both dry milk sold for human consumption and that 
sold for livestock feeding. These are provided by exhibits 
attached to the agreement. There are also detailed trade 
practice rules, differing in the case of the two types of 
market outlet. This agreement as a whole comes closer 
to the type of NRA codes than to the majority of AAA 
marketing agreements. It is regarded, however, as hav- 
ing had something of a beneficial tendency on producers' 
returns by eliminating wasteful practices in the industry. 36 
It has not given rise to any serious enforcement problems. 

36 On Jan. 18, 1935 it was announced that evaporated milk and dry skim 
milk had been added to the list of food products purchased for distribution to 
families on relief rolls. A total of 37,618,800 pounds of evaporated milk and 
3,081,250 pounds of dry skim milk was to be supplied under contracts awarded 
on the bids of the various manufacturing companies. 



CHAPTER XI 

ADMINISTRATIVE PROCEDURES AND 
PROBLEMS 

While the chances that any undertaking such as the Agri- 
cultural Adjustment Administration will accomplish its 
objectives depend in large measure on the economic is- 
sues involved, they likewise depend to an important ex- 
tent on the skill with which its administrative organiza- 
tion has been worked out and upon the adroitness of the 
operative procedures followed. In preceding chapters we 
have had occasion to make incidental reference to a num- 
ber of particular matters lying within this field. We shall 
now undertake a more comprehensive and systematic 
consideration of the operative arrangements and admin- 
istrative problems under the marketing agreements and 
licenses. 

ORGANIZATION OF CENTRAL ADMINISTRATIVE AGENCY 

In Chapter II we noted the general organization of the 
AAA as originally set up and continued until the close 
of 1933 (page 25). This was characterized by a dual 
structure under a Production Division and a Processing 
and Marketing Division, the latter being in the main 
responsible for the formulation and administration of 
marketing agreements and licenses. In that chapter also 
we showed (page 27) the administrative reorganization 
which was effected early in 1934 under which the Pro- 
cessing and Marketing Division was merged with the 
Production Division in a single Commodities Division. 
Under this arrangement the former Chief of the General 
Crops Section, which was the chief center of marketing 

231 



232 MARKETING AGREEMENTS 

agreement activity, except for dairy products, became As- 
sistant Director of the Commodities Division in charge 
of marketing agreements and codes, and General Crops 
(first called Special Crops) was continued as one of the 
sections of the Commodities Division. During the first 
year of the AAA some marketing agreements were ef- 
fected under other commodity sections, namely the Wheat, 
Tobacco, and Rice Sections. Throughout the year, also, the 
Dairy Section devoted the major part of its attention to 
the administration of fluid milk marketing licenses, al- 
though collateral attention was given to the formula- 
tion of a production control program which never be- 
came effective. 

Early in February 1935 a second reorganization of the 
Adjustment Administration was effected. Instead of 
having 14 sections, each with a chief responsible to the 
head of the Commodities Division, who in turn was an 
assistant administrator of the AAA, this new set-up di- 
vides the Commodities Division into six smaller divisions, 
each with a director who sits on a newly created "Oper- 
ating Council" 1 which constitutes a sort of cabinet for the 
Administrator. One of these divisions covers only cot- 
ton; a second covers corn and all kinds of livestock; a 
third deals with wheat and other small grains; a fourth 
embraces tobacco, sugar, peanuts, and rice; a fifth deals 
with commodity purchases, agricultural labor, drought, 
and other emergency programs; and the sixth with dairy 

1 Other members of this council (besides the Secretary of Agriculture and 
the Administrator of the AAA) include the Chief of the Finance Division, the 
Chief of the Program Planning Division, the Consumers' Counsel, and the 
Solicitor of the Department of Agriculture. The latter took over the work of 
the former Legal Division of the AAA, which thereby became integrated with 
other legal work of the Department of Agriculture as a whole. This develop- 
ment had considerable significance for the carrying out of the marketing 
agreement program and will be discussed further in this chapter and more 
particularly in the one which follows. 



ADMINISTRATIVE PROBLEMS 233 

and other marketing agreements and licenses, general 
crops, and field investigation. This division is under the 
direction of J. W. Tapp, who had been chief of the Spe- 
cial Crops Section under the first scheme of organization 2 
and, as assistant director of the Commodities Division 
under the second organization, had been in charge of 
marketing agreements and codes. 

The several changes which have been effected in 
overhead organization of the Adjustment Administra- 
tion have neither interrupted the operation of the market- 
ing agreement program nor materially modified the 
actual content of marketing agreements and licenses ex- 
cept as certain early types of agreements have been discon- 
tinued. They have, however, had considerable influence 
in expediting the procedures under which agreements and 
licenses are handled. 

Under these evolving schemes of administrative organi- 
zation, staffs of specialists have been built up to consider 
proposals for marketing agreements as they came forward 
from processors, distributors, and growers' organizations 
in the field, to arrange for hearings, to assist in the draw- 
ing up of agreements and licenses, and to supervise and 
administer them after they are put in operation. A staff 
of ten specialists in the marketing of horticultural crops 
was built up in the Special Crops Section during the or- 
ganization period in 1933, and it has since grown to 28 
in number. Similar specialists in the Dairy Section have 
worked continuously on marketing agreements and li- 
censes, and members of the Tobacco, Rice, and Wheat 
Sections have given part of their time to this line of work, 
although their major attention has been directed toward 
production control programs. In the task of developing 

2 After the first three months, when H. R. Tolley was in charge. 



234 MARKETING AGREEMENTS 

and supervising agreements and licenses, the staffs of the 
Consumers' Counsel and of the Legal Division have also 
participated. 

While the seat of these activities is in Washington and 
many of the conferences and hearings are conducted 
there, numerous meetings also have been held in the 
producing areas and, before any agreement is consum- 
mated, public hearings are held at a strategically located 
point or points in the affected territory. Both in connec- 
tion with such meetings and in the prior study of the 
problem or subsequent observation of the operation of the 
agreement or license, most members of the Washington 
staff spend a considerable part of their time in the field. 

Such intermittent contacts, valuable though they are, 
have not been regarded as sufficient to insure a satisfactory 
working out of the marketing agreement plans. Even 
the simpler agreements marked new departures for pro- 
cessors, distributors, and producers in all except a limited 
number of cases where analogous ventures had been un- 
dertaken previously by co-operative associations or clear- 
ing houses. It has been necessary therefore to carry on a 
considerable educational campaign while an agreement 
was being worked out, and after it was put in operation 
to have someone rather continuously on the ground at 
least during the active shipping season to observe its 
workings under practical operating conditions. It was 
important to acquire first-hand knowledge of the char- 
acter of the problems that arose, to straighten out 
misunderstandings which interfered with successful oper- 
ation, and to advise Washington headquarters on prob- 
lems of enforcement and the desirability of modification 
through amendment or of changes which would bring 
about improvement in case a new agreement were to be 
drafted. 



ADMINISTRATIVE PROBLEMS 235 

To meet these needs, the Administration early desig- 
nated (August 8, 1933) a member of its staff to act as 
"field representative" in the California area, where several 
marketing agreements were being evolved. In the fol- 
lowing October a similar appointment was made in the 
territory where the very complicated Northwest de- 
ciduous tree fruit agreement was being brought into 
operation. The obvious need of such service and the 
beneficial results derived from the early use of permanent 
representatives in the field led to the increase of this staff 
until on August 1, 1935 there were four representatives in 
California, one in the Pacific Northwest, one in Texas, 
one (part-time) in Colorado, three in Florida, one in 
Virginia, and one (part-time) 3 in New York. 

Besides these field representatives of the Special Crops 
Section, 4 there was also one field representative from the 
Rice Section during the time that commodity was being 
handled under marketing agreements. In the dairy mar- 
keting field a considerable staff of field representatives has 

3 These part-time employees are members of the experiment station staffs in 
their respective states. There are also three men designated as consulting spe- 
cialists. They are located in Oregon, New Jersey, and Georgia respectively and 
give most of their time to other positions, but are subject to call for consulta- 
tion on special situations which develop from time to time. 

4 As indicative of the degree to which administration is being decentralized, 
we may note that the field work in the Pacific Coast states has now been organ- 
ized under permanent branch offices at Berkeley, Calif, and Portland, Ore. 
These offices constitute headquarters not merely for the field representatives 
and consulting specialists, but also for such representatives of the Enforcement 
Section as may be assigned to these areas during periods when marketing agree- 
ments are in active operation. Furthermore, an economist from the Economic 
Analysis Unit of the Special Crops Section has been attached to the Berkeley 
office in order that the problems of this section may be dealt with promptly by 
one closely in touch with local conditions and able to keep local markets under 
constant observation. In most other sections, operations under marketing agree- 
ments are too seasonal in character to make it practicable to establish such a 
permanent branch office. In Florida, however, it would seem that such a de- 
velopment might take place if the citrus agreement is brought back into opera- 
tion and other fruit and vegetable agreements continue in force. 



236 MARKETING AGREEMENTS 

been built up. But events there have followed a some- 
what different course, and we will defer its discussion 
until we can complete our picture of the operative situa- 
tion with reference to special crops agreements. To do 
this we turn now from our consideration of the Wash- 
ington staff and field representatives of the AAA to a 
brief examination of the local administrative agencies 
which have been set up. 

SAFEGUARDING LOCAL AUTONOMY 

From the beginning of the Agricultural Adjustment 
undertaking the point has been stressed that the act is 
highly democratic in spirit and intent. In its production 
control programs, the Adjustment Administration has 
sought to elicit the voluntary co-operation of the rank 
and file of the farmers through educational campaigns 
and to rely in the carrying out of these programs on the 
regulatory or self-governing force of local committees 
democratically chosen. The same general purpose has 
animated the administration of the marketing agreement 
phase of the work. It was hoped that the minds of pro- 
cessors, distributors, and producers would come together 
on the points of an arrangement which would be mutu- 
ally satisfactory. On the basis of this common under- 
standing and support of a program in whose formulation 
they had themselves taken an active and ideally a domi- 
nant part, it was intended that they should set up a repre- 
sentative control body through which it could be self- 
administered. The legality of the procedures which were 
adopted in pursuance of this idea was by implication 
called in question by the Supreme Court's decision in a case 
involving the NRA (see page 287). This has resulted in the 
amendment of the Adjustment Act and changes in ad- 



ADMINISTRATIVE PROBLEMS 237 

ministrative procedure. Before discussing these develop- 
ments, however, we should note what were the adminis- 
trative arrangements under the act from May 1933 to 
August 1935. 

In the earlier and simpler set-ups 5 worked out with 
small groups of processors and distributors, a control 
board often consisted of a sales manager or other execu- 
tives from each of the signatory concerns or was made 
up of persons "selected by" such processor or distributor 
groups. When large numbers of small handlers were 
involved, their representatives were often chosen by elec- 
tion, sometimes with each handier casting a single vote 
and sometimes with voting weighted according to volume 
of business. As greater producer representation came into 
vogue, grower members were selected, generally by pop- 
ular vote, and frequently on a district basis. 6 

5 A few agreements, notably the price bargaining agreements for several 
types of tobacco, were so simple in character as not to require any control com- 
mittee or other local supervisory agency. All that was required in the admin- 
istration of these agreements was a simple check upon compliance with the 
terms of the agreement as to price and volume. This was made by the Adjust- 
ment Administration staff in Washington. 

6 Several agreements provided that if a member was not appointed or elected 
by his respective group within a stipulated period after the agreement became 
effective (such as 15 days), the Secretary of Agriculture should then appoint 
someone to the place. The appointive power has been extended beyond this 
point in only one case — one which involved a peculiar and difficult set of cir- 
cumstances. Under the original Florida citrus agreement, a certain amount of 
friction had developed with reference to the basis of membership on the control 
committee. In the proposed new agreement, the AAA sought to get a control 
committee of 13 members, 7 of whom were to be elected by growers and 6 
selected by shippers. This plan met with approval at a hearing in Florida, but 
at a subsequent conference in Washington in September doubt was expressed 
as to whether the grower elections could be held promptly enough to get the 
agreement in operation by the opening of the shipping season. Underlying this 
reason, there was probably some apprehension on the part of shippers that the 
members of the committee thus elected by growers might be too '"radical" 
for the satisfactory functioning of the committee. They accordingly requested 
the Secretary to appoint the whole committee and for this purpose furnished 
him a list of 50 persons eligible to the office. From this list the Secretary ap- 



238 MARKETING AGREEMENTS 

The role of the Adjustment Administration in Wash- 
ington and its field force was to be that of furnishing 
advice (either in the formulation of the agreement and 
license or in their subsequent administration), investi- 
gating complaints, rendering service in facilitating this 
scheme of industry self-government, and lending the 
strong arm of governmental authority in enforcing the 
plan when such aid was called for by the industry's 
control group. This intention was set forth in the state- 
ment of general policies with reference to marketing 
agreements issued by the Administrator on October 24, 
1933 as follows : 

Agreements shall contain provisions setting up a supervisory body 
to aid in the functioning of the marketing agreement, to determine 
matters of discretion and disputes thereunder. . . . The provisions 
shall be so drawn that all elements of the industry, irrespective of 
their membership in trade associations, shall be adequately repre- 
sented. . . . The Secretary shall retain such supervision and control 
over the action of the supervisory body as he deems desirable, and 
may designate agents to keep him advised thereof and to perform 
such functions as he may require. 7 

In the actual working out of a marketing agreement 
program, considerable pains have been taken to distribute 
representation on supervisory bodies equitably between 
large and small shippers and processors; among proprie- 
tary concerns, co-operatives, and "independents"; and 
among competing geographic areas within a more corn- 
pointed a control committee of 13, and their names were set forth in the new 
marketing agreement. In spite of the fact that the Secretary's appointees were 
all chosen in a manner and from a list suggested by the Florida interests, his 
selection did not meet with approval and the committee was never able to put 
the "agreement" in operation. This outcome strongly suggests that no method 
of appointment could be successfully substituted for popular election. 

7 Statement of General Policies and Model Drafts for Marketing Agreements 
and Codes of Fair Competition, Form M-14, AAA, p. 3. 



ADMINISTRATIVE PROBLEMS 239 

prehensive district covered by an agreement. A further 
question, however, arises as we pass from marketing 
agreements to licenses. When the Secretary of Agricul- 
ture invoked his licensing power, he caused a marketing 
program to become binding on persons who were not 
parties to formulation of the agreement. Much the same 
situation will obtain under the new "orders" (see page 
289), and it raises the question, "Shall these non-signers 
to whom its terms are extended be given the same demo- 
cratic representation on supervisory bodies?" In the early 
days of the AAA, several situations developed in which 
both membership on control boards and eligibility to 
vote for such members were limited to signers of the agree- 
ment. It was not unnatural that those who had labored 
in the perfecting of an agreement should be disposed to 
exclude from a voice in administration those parties who 
had been unwilling to participate in the group under- 
taking on a voluntary basis. Experience indicates, how- 
ever, that a more harmonious and effective carrying out 
of the agreement is likely to be brought about under a 
principle of universal suffrage and eligibility to office. 
Recent practice, therefore, has been to open the privileges 
of voting, and in most cases that of membership on the 
control committee, on equal terms to all licensees, and 
such restrictions as appeared in earlier agreements have 
largely been eliminated through the amendment of old 
agreements and licenses or the substitution of new ones. 
Presumably the same practice will be followed under 
Secretary's orders. 

In Chapters VI to IX we became acquainted with the 
actual provisions made for control boards, proration 
committees, appraisal committees, and similar supervisory 
bodies set up under the various marketing agreements. In 



2 4 o MARKETING AGREEMENTS 

the main, it may be said that these devices have demon- 
strated their feasibility and efficacy as administrative ma- 
chinery although, naturally, many difficulties have been 
encountered. Though met in part by the promulgation 
of formal regulations or through mere admonitions from 
the Adjustment Administration in Washington, or by 
the stimulative or restraining influence of its field repre- 
sentatives, they still present administrative problems. 
Chief of these difficulties probably is the question of how 
to get the proper representation and balance of power in 
the local supervisory agencies. This issue is so large that 
we shall devote a separate section of this chapter to its 
consideration. First, however, let us note three problems 
that arise when local supervisory bodies, however con- 
stituted, are used in the administration of marketing 
agreements. These are: (i) failure on the part of the 
local agencies to exercise fully and aggressively the duties 
incumbent upon them; (2) exceeding of their authority 
by local officers and control boards, sometimes through 
uncertainty as to the precise boundaries of their powers; 
(3) failure on the part of such agencies to follow suf- 
ficiently formal procedures and keep (and transmit to 
Washington) an adequate record of situations with which 
they have dealt and of their reasons for action taken. 8 

8 A further problem should be mentioned. This concerns the financing of 
the local supervisory body. Funds for this purpose are provided by assessments 
levied by the control committee or similar body on the commodity. This be- 
comes a burden on the processors or handlers or is a deduction from the 
growers' net returns, its incidence depending on the commercial situation and 
the working arrangements of this particular agreement. In any event, it creates 
an issue between the natural desire to keep such contributions down to a 
minimum and the desire to have service at a maximum. Some committees 
employ full-time salaried managers and special legal, accounting, and other 
service as needed. The use of field representatives of the Commodity and 
Enforcement sections tends to reduce the need of locally employed staffs. 

Most agreements stipulated that control committee members should serve 
without pay, and where per diems have been allowed they have ordinarily 



ADMINISTRATIVE PROBLEMS 241 

Failure of a local committee to perform is ordinarily 
due either to an unfortunate selection of membership or 
to the preoccupation of the members with their private 
affairs. The very effort to pick men of outstanding ability 
sometimes results in getting members who, however keen 
their interest in the work, find the duties of the office 
imposing the greatest demands on their time just when 
they are most occupied with the demands of their own 
business. Such difficulties, however, may in general be 
met by adequate field service supplied by the Adjustment 
Administration and by the building up of a proper staff 
of assistants to handle routine work in the control com- 
mittee's office. 9 Much more serious is the type of failure 

been moderate in amount. Paid managers and other employees have usually 
been taken over at the same rate of salary as they had been receiving in other 
employment. The few cases where the Adjustment Administration has de- 
murred at committee expense have practically all concerned attorneys' fees 
which they regarded as exorbitant. Administrative Order No. 2, issued June 
J 934> provided that each control committee should "submit to the Secretary 
for his approval an itemized budget of its estimated expenses and an equitable 
basis upon which funds necessary to support such budget shall be contributed 
by members of the industry." In general, the budgets submitted have been 
deemed reasonable in amount, although in one case Adjustment Administra- 
tion officials considered a proposed budget insufficient to meet the probable 
expenses of efficiently carrying out the agreement, and in one or two cases they 
suggested that the original proposal be revised downward. In some cases, 
difficulties have been encountered in collecting the necessary contributions from 
licensees or even signatories to the agreement (see Chap. XII). In general, 
however, the levies have been paid willingly and have been more than sufficient 
to meet the expenses actually incurred so that refunds have been made after the 
close of the marketing season. 

9 In the school of experience various lessons are being learned as to how 
these duties may be simplified and the tax on members' time lightened. For 
example, the area of the Florida celery marketing agreement included two dis- 
tricts which center at the towns of Sanford and Sarasota, approximately 125 
miles apart. The regular weekly meeting of the control committee was sched- 
uled at a third town, Lakeland, about half way between these two, which made 
it possible for members to leave their homes about noon, attend the meeting, 
and return at a reasonable hour. However, when only routine business was to 
be transacted or a proration was to be settled which did not involve acute issues 
or wide divergence of opinion, committee members from the northern district 



242 MARKETING AGREEMENTS 

to perform which is due to loss of interest on the part of 
committee members who at the start were enthusiastic 
over the possibilities of the market adjustment device but 
who have subsequently become indifferent. Such defec- 
tion may either be the result of the return of a better 
price level or because committeemen have been disap- 
pointed with the ability of the agreement to produce swift 
and spectacular results. Or members may become irri- 
tated by some of the difficulties encountered. 

As to action by committees outside the bound of 
the authority conferred on them under the agreement 
or license, the remedy is evident. It is necessary that the 
Adjustment Administration in Washington or some rep- 
resentative in the field be promptly informed as to such a 
development in order that the matter be called to the 
attention of the members or officials of the local board. 
If the infraction is due to ignorance or oversight, it will 
be quickly set right. If it reveals a point at which the 
existing agreement or regulations interfere with necessary 
action, it will start a constructive discussion of the diffi- 
culties and the means of remedying them through amend- 
ments or new administrative rulings. In any event, this 
issue merges into our third problem, namely that of secur- 
ing full and prompt information at Washington as to 
developments in the field. 

Local administrative boards show wide differences in 
quality of membership, have chairmen of varying degrees 
of administrative competence, usually appoint qualified 
and experienced secretaries and clerical help, but some- 
times are very inadequately manned. Hence they show 

assembled at Sanford and those of the southern district at Sarasota and the two 
groups were connected by long distance telephone with a loud speaker attach- 
ment in each committee room. Actions taken at such meetings were ratified at 
the next assembled meeting of the committee. 



ADMINISTRATIVE PROBLEMS 243 

a wide range in the promptness and thoroughness with 
which they keep Washington posted as to their activities 
and in their compliance with provisions of the agreements 
requiring that their acts shall be subject to the approval 
of the Secretary of Agriculture. 10 The requirement that 
local decisions be acceptable to the Secretary is common 
to all agreements, but it takes two general forms: (1) 
that actions of the local supervisory body shall not become 
effective until approved by the Secretary; and (2) that 
such action, though immediately effective, shall be sub- 
ject to the right of the Secretary to disapprove at any time. 
If, in the latter case, there is any laxity in reporting to 
Washington, conditions may be brought about which, if 
the Adjustment Administration had been informed, 
would have been prevented. It should be remembered 

10 The procedure to be followed by local authorities in their relations with 
Washington was laid down in Administrative Order No. i (June 1934). This 
was further elaborated on Feb. 25, 1935 through the Secretary's approval of 
Administrative Order No. 8. This order requires that every official act of the 
supervisory body shall be in writing, signed by the chairman, secretary, or other 
properly designated person; that full and accurate minutes shall be kept of all 
board or committee meetings; and that the rules and regulations covering the 
conduct and procedure of the supervisory body shall be in writing, signed by 
the chairman, secretary, or other designated person. Five certified copies of 
every order or other act of the supervisory body and of the minutes of each of 
its meetings shall, at the same time that they are filed in the local office, be 
forwarded to the appropriate section chief in the AAA at Washington. 

It is obvious, however, that important and salutary as this rule may be, it 
does not obviate the need for a personal representative in the field. There still 
remains the possibility that some control boards or officials may be lax in com- 
plying with the requirements of the administrative order, and the services of 
the field men may be important in stimulating and checking up their activities 
in this regard. But even if reports are full, accurate, and prompt, they do no 
more than inform the Adjustment Administration officials after action has been 
taken. In a large proportion of cases, it is much more important that these 
officials know in advance of situations that are developing, attitudes that are 
forming, and the courses of action which are being contemplated if they are to 
fit their own activities into such a developing program or, where need seems 
to arise, interpose either their influence or their authority to shape action in a 
different direction. 



244 MARKETING AGREEMENTS 

also that sometimes, even though difficulties in the field 
were reported to Washington, action was delayed at that 
point with unfortunate results. In the former, action 
may be needlessly delayed, or, if taken without approval, 
may be subject to attack at any time. 

With so much that is experimental being worked out 
under the agreements and licenses, it is administratively 
out of the question to have Washington in the dark as to 
precisely what is going on in the local areas. It is not less 
unfortunate if persons vested with local responsibility are 
left to devise their own courses of action and to evolve 
their own interpretations of the law and the terms of 
the agreement and license in ignorance of or uncertainty 
as to legal and administrative interpretations of their 
rights and duties. In some quarters it is felt that the 
situation has not been fully met but that further decentral- 
ization should take place so that more of the members of 
the Adjustment Administration staff would be in the field 
and fewer in Washington. An important agreement with 
a continuous or long marketing season requires the full 
time of one man and it is probable that no individual can 
do full justice to more than two agreements simultan- 
eously. Of course, some shipping seasons are quite brief, 
thus enabling one man to handle several agreements suc- 
cessively. 

Finally, it is to be noted that the greatest administrative 
short-coming from the standpoint of control committees 
and local participating agencies is that matters on which 
they feel the need of prompt and informed decision at 
Washington are often delayed in consideration, become 
entangled in red tape, or are decided by persons too much 
out of touch with exigent local situations. Two condi- 
tions need to be met: (i) decentralization of administra- 



ADMINISTRATIVE PROBLEMS 245 

tion so as to bring a professional staff closer to the scene 
of action; and (2) placement in local branch offices or on 
tour in the field of responsible officials who can make 
decisions or have prompt contact by telegraph or tele- 
phone with the ultimate authority at Washington. This 
is the surest and in fact the only way of getting an admin- 
istration which is sufficiently speedy, flexible, and techni- 
cally competent to handle the distributive problems of a 
perishable commodity. 

CO-ORDINATING CENTRAL AND LOCAL AGENCIES 

We have already noted (page 238) that the role of 
field representatives of the AAA is advisory to the con- 
trol boards in so far as they make suggestions on pro- 
cedures which conform to the law, the administrative 
rulings, and the terms of agreements and licenses. 11 But 
they are supposed to refrain from any effort to influence 
the control committee on matters of general marketing 
policy or its course of action in specific situations. 

Under the course of administrative development which 
we have been tracing, a local supervisory body was en- 
trusted with the actual conduct of affairs, subject to the 
veto of the Adjustment Administration. 12 The AAA staff, 

11 Besides these activities in connection with agreements already in opera- 
tion, the field representatives consult with growers, distributors, or processors 
in their respective districts who may be interested in the development of a new 
agreement, assisting them in working out its details in a comprehensive pro- 
posal which can be submitted to Washington. 

13 The whole procedure starts from an agreement to which local interests 
are ready to adhere, the license being resorted to merely to assure signatories 
that any dissenting minority will conform. After the plan is put in operation, 
the local people who agreed must assume the responsibility for positive action 
to carry out the agreement rather than leaving such decisions to the Adjustment 
Administration while they reserve the privilege of objecting to whatever is done. 
Administratively the government contributes information and advice and 
reserves a veto power. But the marketing plans must be operated by the groups 
which called them into being (except under the fluid milk licenses, whose ad- 
ministrative situation will be discussed presently). 



246 MARKETING AGREEMENTS 

both in the field and at headquarters, acted in an advisory 
role to the local supervisory body and likewise to the Ad- 
justment Administrator, the division heads, and the Secre- 
tary, subject, however, to such approval or disapproval as 
they might express. While this procedure corresponds to 
the democratic ideal of local autonomy instead of bureau- 
cratic domination, it is not accepted throughout the Ad- 
justment Administration as being without question the 
most satisfactory scheme of organization. In some quar- 
ters the view is held that the field men should become 
responsible representatives of the Secretary in local areas, 
clothed with responsibility for carrying out the agree- 
ments and licenses in conformity with the Adjustment 
Administration's interpretation of the law and with its 
administrative rulings and general policies. 

Under such a plan the locally selected boards and com- 
mittees would serve simply in an advisory capacity, sup- 
plying such information and making such recommenda- 
tions to the local representative of the AAA as he might 
desire or they think fit. No such administrative theory 
was, however, put into effect with reference to special 
crops prior to the time that the decision of the Supreme 
Court in the Schechter case (NRA) cast doubt upon the 
legality of such a delegation of authority to non-official 
agencies as had been taking place under the established 
procedure with reference to control committees. As a 
result of this decision, certain changes were introduced 
in the amendments then pending before Congress. Be- 
fore discussing these amendments, however, we shall 
describe the system of administrators under which fluid 
milk licenses had for more than a year been handled. 

When the first 15 marketing agreements were put into 
effect, great reliance was placed upon the existing co- 



ADMINISTRATIVE PROBLEMS 247 

operative and distributor organizations as the machinery 
through which the terms of the agreements would be 
carried out. The Boston agreement, however, provided 
that the contracting producers and contracting distribu- 
tors should name a person to act as market director to 
carry out the terms of the agreement, his actions being 
subject to appeal to a board of arbitration (see page 214). 

From the start there had been a good deal of talk of 
"milk trade boards" in each market, which should collect 
a service charge on all milk and from this defray the costs 
of the various services provided under the terms of the 
agreement. The co-operatives had long been accustomed 
to making a "check-off" on their members and to per- 
forming such services as checking of weights and tests, as 
well as to carrying on collective bargaining and other 
negotiations with the distributors. They were unwilling 
to see any of these functions pass out of their hands, 
whereas non-co-operatives were unwilling to come under 
this check-off system. As a result, deductions from 
non-co-operative milk were ordinarily paid to the local 
Dairy Council, which was to see that service comparable 
to that of the co-operative associations was given to the 
independents. Several of the agreements gave the sig- 
natories authority to set up such a supervisory body as 
they thought necessary, but these provisions had not been 
made use of, and the whole matter was still in a very 
inchoate stage when the milk marketing agreements were 
cancelled (February 1, 1934) and the fluid milk program 
passed into its license phase. 

This transition involved one clear-cut change, namely; 
the appointment in every licensed market of a market 
administrator, who was the direct representative of the 
AAA. This step was taken in response to the view of the 



248 MARKETING AGREEMENTS 

Legal Counsel that federal licenses must be directly ad- 
ministered by federal authority and foreshadowed the 
position subsequently set forth by the courts (see pages 
283, 285, 288). At the same time the new licenses made 
formal provisions for the setting up of a local supervisory 
committee, and statements of policy emphasized an inten- 
tion of increasing the amount of local participation. The 
idea of local milk industry boards federated into regional 
boards and a single national overhead agency to co-ordi- 
nate the whole fluid milk industry was espoused by the 
AAA, but with the important qualifying remark: "In 
delegating power and authority to industry boards or 
committees, it must at all times be understood that these 
boards are under the supervision of the Secretary of 
Agriculture, as he must control their actions, especially 
when such actions interfere with other sales areas." 

In fact, these local committees and the whole milk board 
system proved not to be viable. Perhaps because of the 
limitations placed upon the authority of these boards and 
perhaps because of the vitality already acquired by in- 
formal councils of co-operative officials and distributors' 
representatives, the system of market administrators, in- 
stead of putting the Secretary in more direct and effective 
control of the market, seems to have thrust these pre- 
viously dominant coalitions of collective bargaining 
agencies back into real control of the situation. 

The implications of the United States Supreme Court's 
decision in the Schechter case in May 1935 seemed to be 
that in future the market administrator type of organiza- 
tion will have to be used exclusively. If so, past experi- 
ence under the milk licenses raises some doubts as to 
whether it will be possible under such a system to secure 
the voluntary agreement on terms of a marketing plan 



ADMINISTRATIVE PROBLEMS 249 

and the cooperation in carrying it out which seem to be 
necessary to the success of any such venture. Certainly 
it is true that, in spite of the efforts to secure new market- 
ing agreements after the initiation of the policy of licenses 
under market administrators beginning in February 1934, 
it was nowhere possible to secure such an agreement. 
Under the amendments of August 24, 1935 to the Agricul- 
tural Adjustment Act, licenses will be superseded by Sec- 
retary's orders and administrative arrangements resem- 
bling the procedures used in the fluid milk markets much 
more closely than those used under agreements and 
licenses for special crops. We shall discuss the adminis- 
trative implications of these amendments at the close of 
this chapter but will first complete our examination of the 
administrative arrangements which have obtained where 
local control committees rather than market administra- 
tors were employed. 

MAKE-UP OF LOCAL SUPERVISORY BODIES 

If the ideal of economic democracy with a large meas- 
ure of local autonomy is to be made workable, it is evi- 
dent that some logical formula must be devised or 
some happy hunch hit upon which will result in giving 
proper recognition and weight to the several interest 
groups involved in any given undertaking. These align- 
ments involve issues among distributors, processors, and 
producers; between co-operatives and non-co-operatives, 
both on the producer and on the distributor side; between 
large processors and distributors (including co-operatives) 
and small ones; and between geographical districts within 
the area covered by an agreement or license. 

The Adjustment Administration's initial statement of 
general policy (see page 238) covering this matter is ex- 



250 MARKETING AGREEMENTS 

tremely interesting. It states that: "All the elements of 
the industry, irrespective of their membership in trade 
associations, shall be adequately represented." The use 
of the word "industry" followed by the reference to trade 
associations seems to indicate clearly that the point of 
view is that of mercantile and manufacturing industries 
rather than that of agriculture as such. There was mani- 
fest at this time a considerable tendency to look upon mar- 
keting agreements in much the same light as industrial 
codes under the NRA except that the farmer was to be 
a sharer in any benefits accruing. 13 This view is borne 
out by the sentence immediately following the one just 
quoted, which states that: "The representation shall ex- 
tend to producers if any group thereof is a party to the 
agreement." Under the act as it then stood, such partici- 
pation in the agreement on the part of producers could be 
only through their membership in co-operative associa- 
tions. 14 The statement of policy adds : 

Where producers have a direct interest, but where no group of 
producers is a party to the agreement, provision should be made 
wherever practicable for an advisory committee representative of 

13 The most extreme expression of this view came in the early days of 
marketing agreement activity, when certain processor groups apparently looked 
to this device as a means of securing for themselves advantages which they had 
been unable to get under the anti-trust laws and Federal Trade Commission 
surveillance. Proposed agreements for packers, linseed oil crushers, cotton 
ginners, cottonseed oil mills, and sugar refiners fell in this group. The packers' 
agreement was fairly typical in its proposal that the control committee be desig- 
nated by the Institute of American Meat Packers. This and similar proposed 
agreements failed to win the approval of the AAA because it could not be 
discovered that they were calculated to effectuate the purpose of the act — better- 
ment of farmers' prices and incomes. In a few cases, however, codes were com- 
pleted and put in effect. See table on p. 58. 

14 That is, so far as the control committee was concerned. It was, however, 
from the start very common to accord producers (sometimes specifically those 
who were not members of co-operatives) membership on important operative 
committees such as acreage committees, crop boards, proration committees, 
and the like. 



ADMINISTRATIVE PROBLEMS 251 

producers' interests; and in all cases where no group of producers 
is a party to the agreement, their interests, even if remote, shall be 
protected by the powers vested in the Secretary of Agriculture. 

This put the producer in practically the same relation to 
marketing agreement administration as was the consumer 
with a Consumers' Counsel to represent his interests. In 
the marketing agreements which became effective between 
August and November 1933, control committees 15 were 
in the main simply committees of processors. 16 The Cali- 
fornia cling peach agreement, besides eight processors 
(one a co-operative), called for a representative of the 
"consuming public" and the vice-president of the Cali- 
fornia Farm Bureau Federation. The control board under 
the walnut marketing agreement included five representa- 
tives of co-operative packers, two representatives of private 
packers, one representative of non-co-operative growers, 
and one selected by the other eight. Under several of 
these agreements, there were also crop estimating com- 
mittees, proration committees, crop boards, acreage com- 
mittees, and similar bodies dealing with the technical 
process of proration, and on these there was also grower 
representation, though generally limited to a minority. 
A producers' committee under the evaporated milk agree- 
ment might "jointly confer with the manufacturers' com- 
mittee with respect to any changes" in the schedule of 
minimum prices provided under the agreement. 

15 Though designated during this early period by several titles other than 
control committee, such as executive committee, manufacturers' committee, 
control board, distribution committee, and marketing board. The North 
Pacific wheat agreement likewise gave producer associations equal representa- 
tion with millers and distributors. 

16 Though the California rice marketing agreement makes something of 
an exception. Besides the millers (largest of which was the co-operative growers' 
mill) the signatories included an "independent rice growers' committee, an 
unincorporated association." 



252 MARKETING AGREEMENTS 

Beginning with the citrus marketing agreements (ef- 
fective December 14 and 22, 1933) there was evident a 
movement toward larger grower representation on control 
committees which took the general pattern of equal rep- 
resentation for growers. 17 The 50-50 rule prevailed during 
1934. The marketing agreement for shippers of fresh 
peas and cauliflower grown in the state of Colorado (ef- 
fective January 11, 1935) provides a control committee 
consisting of three representatives of shippers and six rep- 
resentatives of producers. This agreement provides that 
"each shipper or producer shall be entitled to cast one 
vote on behalf of himself, agents, partners, affiliates, sub- 
sidiaries, and representatives" in the election of members 
of the control committee. All three shipper members are 
elected by vote of all shippers, whereas the producer mem- 
bers are selected by a general election in each of four dis- 
tricts, two of which have one representative each, and two 
of which have two representatives each. 

Under such a plan districts are delimited and represen- 
tation given to each so as to equalize representation with 
volume of business. 18 The same desire to weight repre- 
sentation equitably is also manifest with reference to 
shipper or processor representatives in the majority of the 
agreements. For example, the new fresh asparagus mar- 
keting agreement (effective April 3, 1935) specifies that 
one member of the control committee shall be designated 
by each handler who shipped 100 or more carloads of 
asparagus during the preceding year, and four members 

17 In the case of odd-numbered boards, it was sometimes stipulated that the 
odd member should be neither a grower nor a processor or handler, but more 
often the processors or handlers were given the extra representation. 

18 Frequently difficulty arises in this connection and it has to be worked 
out among the interested parties as part of the negotiations prior to the adoption 
of the agreement. In numerous cases the original districting has been unsatis- 
factory and has been the subject of later amendments. 



ADMINISTRATIVE PROBLEMS 253 

shall be selected by a general election in which all handlers 
who individually shipped less than 100 carloads shall each 
be entitled to one vote. 

In a majority of cases, the control committees have 
shown a considerable feeling of solidarity and have 
settled down rather promptly into effective working 
organizations. In a few cases, however, such as North- 
west deciduous tree fruits and Florida citrus, past trade 
friction has been carried over into the work of the com- 
mittee and it has been impossible to get beyond this fac- 
tional strife to the development of policies designed to 
advance the industry as a whole. In some instances, geo- 
graphical rivalries have entered into the picture and have 
been aggravated by the gratuitous activities of local news- 
papers or chambers of commerce which were desirous of 
having the headquarters of the control committee located 
in their city. On the other hand, agreements have in 
several instances been the means of mitigating, if not 
ending, ancient feuds in the interest of a more unified 
group effort. 

PRODUCERS' DIRECT PARTICIPATION IN AGREEMENTS 

Besides the enlarged participation of producers in the 
selection of control committees referred to above, grow- 
ers have also secured (under the amendment of April 9, 
1934) the right to become direct parties to an agreement. 
No attempt has thus far been made to bring individual 
growers in as signatories to agreements on a wide scale 
except under the second Florida citrus marketing 
agreement (effective December 18, 1934) . Following the 
signatures of the grower members of the control com- 
mittee and their alternates, this agreement states that 1,865 
counterparts of the agreement executed by growers are 



254 MARKETING AGREEMENTS 

on file in the office of the Secretary of Agriculture. 
Whether such a procedure is to be followed on a broad 
scale in the future remains to be seen. 

Several probable effects of such a development are ap- 
parent, (i) It would serve to increase the participation 
of growers in the formulation of agreements, inform them 
generally as to its terms, and presumably conduce to a 
larger measure of co-operation on their part in the carry- 
ing out of the agreement. (2) It would apprise pro- 
cessors and handlers of a belief on the part of producers 
that the agreement was designed to promote the pros- 
perity of the industry, and of the producers' intention to 
see that their product was handled in accordance with its 
terms. (3) It might, if carried to its logical conclusion, 
transform marketing agreements from their original 
character of industry codes of processors and distributors 
or their present hybrid half industrial and half agricultural 
character into a new type of organization, with the pro- 
ducers' group as a whole assuming complete control of 
their product and both distributors and processors occupy- 
ing a service relationship with reference to the commodity. 

The general attitude in the early days of marketing 
agreements was that there was to be a general recovery 
movement based on an upward revision of prices all 
along the line. It was felt that in situations which were 
to be attacked from the market adjustment rather than 
from the production adjustment approach, price enhance- 
ment could be most speedily and effectively secured if pro- 
cessors and distributors participated — indeed, led in the 
effort. To secure their interest and co-operation, it was 
agreed that they would need to share directly in the finan- 
cial benefits of the undertaking and, to make their par- 
ticipation most effective, it was thought necessary to give 
them a large part in administrative control. 



ADMINISTRATIVE PROBLEMS 255 

In so far as marketing agreements and licenses have 
been, or are in future to be, regarded as institutions of 
marketing reform, particularly curtailment of processing 
and distributing margins (see Chapter XIII), it would 
seem logical to expect that the representation of processors 
and distributors as such on control committees would 
dwindle and disappear except to the extent that growers 
either as individuals or through their corporate or co-oper- 
ative organizations operate also as distributors and proc- 
essors. The question of the future of marketing agree- 
ments and licenses ties in very closely with the issue as to 
what relation they bear to the co-operative organization of 
farmers. This issue was left in an ambiguous position in 
the law but it has become a clear-cut and at times acute 
administrative problem. 

RELATIONS BETWEEN THE AAA AND CO-OPERATIVES 

"Associations of producers" were permitted to become 
parties to marketing agreements under the Adjustment 
Act, and they have in fact become signatories to every 
marketing agreement which has been brought to the effec- 
tive stage except for a few special types such as the 
temporary price-raising agreements with tobacco manu- 
facturers, and the alcoholic beverage, and the gum rosin 
and gum turpentine agreements. 

The first attitude assumed by the Adjustment Admin- 
istration was that it would "give recognition to co-opera- 
tives in connection with marketing agreements in so far 
as they are situated and equipped to render aid in carry- 
ing out the purposes of the act." Officials at this time 
were very deeply concerned to see that all parties should 
receive equal and impartial treatment, and they believed 
that the above-stated policy would assure this result. 

The co-operatives, however, felt that the letter of this 



256 MARKETING AGREEMENTS 

policy offended the spirit of fair and equal treatment to 
the co-operatives. They pointed out that through a long 
period of struggle and sacrifice they had built up agencies 
to render various marketing services, primarily to their 
own members but in the nature of the case beneficial 
sometimes in less, sometimes in equal, and sometimes 
even in greater degree to those who had not borne the 
burden of building up these service agencies. They felt 
that the Adjustment Administration, by nominally pro- 
tecting everyone's right to equal treatment, was giving 
those who had been indifferent or even hostile to previous 
efforts to improve the producers' position in the market 
what amounted to more favored treatment than the co- 
operatives. 

Particular situations that arose in this connection were 
met in various ways, such as the making of a service 
"check-off" on non-co-operative dairymen equal to that 
made by the co-operatives and the giving of analogous 
services through the market administration. 19 On the 
other hand, AAA officials continued on their guard against 
efforts of co-operative organizations to make themselves 
the exclusive agents for carrying out market adjustment 
efforts in the same manner that trade associations of pro- 
cessors and distributors had sought to do in connection 
with certain other commodities. 

In order to clarify the situation once and for all, the 
American Co-operative Council at its annual meeting in 
January 1935 drew up a detailed statement of its position 
and of the administrative attitude which it thought was 
incumbent upon AAA authorities. This memorandum 

19 See p. 215 and John D. Black, The Dairy Industry and the AAA, pp. 
98, 113. For further discussion of the relation between the AAA and the co- 
operative movement, see American Co-operation, 1933, pp. 29-85; the same, 
1934, pp. 46-76, 85, 94«f. 



ADMINISTRATIVE PROBLEMS 257 

was presented in person to the officials concerned and dis- 
cussed with great thoroughness and entire good nature. 
Agreement was reached as to courses of action which 
would effect equality of treatment in fact as well as in 
spirit. To cover the matter more fully a provision was 
inserted in the amendments shortly thereafter presented 
to Congress which read : 

The Secretary of Agriculture ... in the administration of this 
title shall accord such recognition and encouragement to producer- 
owned and producer-controlled co-operative associations as will be 
in harmony with the policy toward co-operative associations set forth 
in existing acts of Congress, and as will tend to promote efficient 
methods of marketing and distribution. 

In submitting the amendments to Congress, Administra- 
tor Davis said: 

The Agricultural Adjustment Administration intends, and be- 
lieves it to be the intent of Congress, that the functioning of the act 
shall whenever possible accord recognition and encouragement to 
producer-owned and producer-controlled co-operative marketing as- 
sociations. After consultation with leaders of co-operative marketing 
associations, it has been suggested that language be added to Section 
10, Sub-section (b), to express this policy. 

The proposed section was included in the amendatory 
act as finally passed, and there was also another provision 
touching co-operatives. In the operation of the act, there 
had been some uncertainty as to whether the vote of a 
co-operative association on matters connected with a mar- 
keting agreement could be regarded as the vote of its 
members. The question became much more important 
under the amendments of August 1935, since a Secretary's 
order in lieu of a license issues only upon the express ap- 
proval of two-thirds of the producers. To clarify this 
matter, Section 8 (12) was added to the act (see Appen- 
dix C, page 432) by the amendments of August 24, 1935 



258 MARKETING AGREEMENTS 

providing that in any determination of the producers* 
attitude with reference to the issuance, modification or 
termination of any order, the vote of the co-operative asso- 
ciation should be regarded as the "approval or disapproval 
of the producers who are members of, stockholders in, or 
under contract with such co-operative association of 
producers." 

It is perhaps too much to expect that these definitions 
of policy completely dispose of all difficult administrative 
situations. They do, however, mark a further step toward 
not merely clarifying but also strengthening the position 
of co-operative associations of producers. They are prob- 
ably to be interpreted as part of a swing of marketing 
adjustment plans from distributor direction to producer 
direction. 

SECURING CURRENT DATA ON OPERATIONS 
The last major administrative problem to which we 
shall refer covers the highly controversial issue as to the 
degree of access to the account books and business records 
of signatories and licensees which it was proper for the 
Secretary of Agriculture to demand and expedient for 
processors and distributors to grant. 20 The essence of the 
marketing agreement provision is that it grants certain 
agencies rights to joint action which would otherwise be 
denied them under the anti-trust laws. The act was passed 
to benefit producers but also puts a mandate on the Sec- 
retary of Agriculture to prevent the exploitation of con- 
sumers. To discharge these responsibilities and make sure 
that the monopolistic powers granted under Section 8 (2) 
of the act were not used improperly, he must be quite 
fully informed as to what goes on under the agreements. 
Naturally all marketing agreements provide, as we 

20 The legal aspect of this question will be discussed in the following chapter. 



ADMINISTRATIVE PROBLEMS 259 

have noted in preceding pages, that signatories shall sub- 
mit regular reports to the Adjustment Administration of 
such character and upon such forms as the Secretary of 
Agriculture may prescribe. These are to be made under 
oath, but administrative officials have desired to strengthen 
their position still further by asserting the right to 
examine all such books and records as they deem perti- 
nent whenever in their judgment this is necessary in order 
to be certain that the powers granted are not being mis- 
used. In a few agreements this right has been quite freely 
granted whereas in others it has had to be considerably 
circumscribed before being accepted by the signers of the 
agreement. In either event the question arose again in 
full force when it came to the accompanying licenses. 
Here the AAA included such provision as it felt was 
required for the proper discharge of its duties, extending 
it to those who did not accept the voluntary terms of the 
agreement and enlarging it if those terms were considered 
inadequate. 

Licensees have resisted such claims of right to examine 
books and records as have been inserted in licenses, as we 
shall see in the following chapter. In order to clear the 
question of legal authority for such action, it was proposed 
in amendments before the last Congress to add to 
the Adjustment Act a new sub-section reading as follows: 

Sec. 8 (4) (a). All parties to any marketing agreements, and 
all licensees subject to a license (whether such parties and licensees 
be corporations or others), shall severally, from time to time, upon 
the request of the Secretary, furnish him with such information as 
he finds to be necessary to enable him to ascertain and determine 
the extent to which such agreement or license has been carried out 
and/or has effectuated the declared policy of the act, and, with 
such information as he finds to be necessary to determine whether 
or not there has been any abuse of the privilege of exemptions from 



2 6o MARKETING AGREEMENTS 

the anti-trust laws, such information to be furnished in accordance 
with forms of reports to be supplied by the Secretary. For the pur- 
pose of ascertaining the correctness of any report made to the Secre- 
tary pursuant to this Sub-section (4) (a), or for the purpose of 
obtaining the information required in any such report where it has 
been requested and has not been furnished, the Secretary is hereby 
authorized to examine any books, papers, records, accounts, corre- 
spondence, contracts, documents, or memoranda, within the control 
(1) of any such party to such marketing agreement, or any such 
licensee, from whom such report was requested and/or (2) of any 
person having, either directly or indirectly, actual or legal control 
of or over such party or such licensee and/or (3) of any subsidiary 
of any such party, licensee or person. 

Notwithstanding the provisions of Section 7, all information fur- 
nished to or acquired by the Secretary of Agriculture pursuant to 
this sub-section shall be kept confidential by all officers and em- 
ployees of the Department of Agriculture and shall be disclosed 
only in a suit or administrative hearing brought at the direction, or 
upon the request, of the Secretary of Agriculture, or to which he is 
a party, and involving the marketing agreements or license with 
reference to which the information so to be disclosed was furnished 
or acquired; Provided, however, that nothing in this sub-section 
shall be deemed to prohibit (1) the issuance of general statements 
based upon the reports of a number of parties to a marketing agree- 
ment or of licensees, which statements do not identify the informa- 
tion furnished by any individual, or (2) the publication by direction 
of the Secretary of the names of any persons violating any market- 
ing agreement or any license, together with a statement of the par- 
ticular provisions of the marketing agreement or license violated by 
such persons. Any such officer or employee violating the provisions 
of this sub-section shall upon conviction be subject to a fine of not 
more than $1,000 or to imprisonment for not more than one year, 
or to both, and shall be removed from office. 

Of this section, Administrator Davis in his letter of 
transmittal said: 

For the protection of the public, of producers, and of the business 
interests concerned, the Adjustment Administration must be able 



ADMINISTRATIVE PROBLEMS 261 

to obtain information to disclose whether the policy of Congress is 
being effectuated by such marketing plans. Licensees as well as 
parties to marketing agreements should be required, upon request 
of the Secretary, to make reports on the operation of the agreement, 
and give access to their books and records to verify such reports, or 
to secure the information if reports are not made when called for. 

This section was passed with certain minor modifica- 
tions, chiefly designed to bring it in accord with the change 
from licenses to orders (see full text of marketing agree- 
ment and orders sections of the amended act, Appendix C, 

Page 435)- 

As a matter of practical administration, however, it is 
at least arguable that a less inclusive authority than that 
embraced in the amendment would be adequate and per- 
haps more workable. It was only in the milk licenses and 
a limited number of cases covering special crops where 
resale prices were prescribed under a license that the audit- 
ing of business records became important as a means of 
checking compliance. Price fixing is excluded under the 
recent amendments and hence that justification disap- 
pears. Even in the most extreme cases, it would seem 
that any significant evasion of the terms of an order 
could be detected and reached through ordinary court 
procedures. It is sometimes claimed that many lines 
of business are so complex and the various phases so in- 
terrelated that it is hardly possible to devise any system of 
reports which will reveal the situation truly and fully, 
and that it becomes necessary therefore to go through the 
given company's books with government auditors to get 
at the facts adequately. To this it may be answered that 
accounting is not a science with a technique of investiga- 
tion which yields a demonstrably true answer. So many 
issues of theory and personal judgment enter in that the 



262 MARKETING AGREEMENTS 

precise meaning of the final figures must still remain a 
matter of debate. 

It thus becomes a question whether the struggle to get 
an inclusive right of access to books and records included 
is worth the opposition which it inevitably engenders. 
Might not more net gain for agriculture be secured by 
cultivating methods of co-operation and carrying the 
agreement approach as far as possible ? And in testing the 
results under agreements and licenses, are there not non- 
accounting tests which can be applied more economically 
and with as high a degree of reliability as those derived 
from the work of a staff of accountants turned loose in a 
business with whose technical details they are of necessity 
unfamiliar ? 

ADMINISTRATION UNDER THE AMENDMENTS OF 1935 

We shall not attempt at this point to discuss in detail 
the nature of the amendments to the Adjustment Act 
which were passed in August 1935. This subject is related 
more closely to the legal issues discussed in the following 
chapter. It seems desirable, however, before leaving our 
discussion of administrative procedures and problems, to 
note briefly the changes which will be introduced under 
the amendments. 

The earlier part of this chapter has called attention to the 
fact that the administrative officers of the act have enter- 
tained a highly democratic philosophy of administration 
and have sought to leave the actual development of market 
adjustment proposals within the control of local market- 
ing agencies and have sought to put the largest measure of 
administrative responsibility upon these parties. So far 
have they gone in this direction in fact that various lower 
courts have held that their procedures have amounted to 



ADMINISTRATIVE PROBLEMS 263 

an undue delegation of authority to persons not in 
official positions. This view was by implication strength- 
ened by the ruling of the Supreme Court in the Schechter 
(NRA) case. The amended act, besides being much more 
explicit as to what elements may be included in a market 
adjustment undertaking, provides procedures under which 
any action takes the form of an act of the Secretary of 
Agriculture. 

Administratively, therefore, three things are apparently 
in order. First, control committees must be named by 
the Secretary rather than elected by the industry, so that 
such delegation of power as is made by the Secretary in 
accordance with the provisions of the act will be only to 
his own appointees. Attention has already been called to 
the strong desire on the part of the Adjustment Adminis- 
tration to employ democratic elective procedures in the 
selection of control committees, the success of the Admin- 
istration having been in large part dependent upon this 
local participation. It seems clear that the Adjustment 
Administration has no desire to substitute an appointive 
procedure and equally clear that if anything like a dicta- 
torial attitude were taken, the whole system of agreements 
would promptly break down. On the other hand, it 
would seem entirely possible in the future for local interests 
to draw up panels of names which they wish to recom- 
mend to the Secretary for the setting up of a control com- 
mittee with indication of their relative preference. In 
making selections, the Secretary could, although following 
the letter of the appointive procedure, maintain the spirit 
of democratic selection. Present indications are that such 
a policy will be followed. 

To accomplish this change, all the marketing agree- 
ments which are to be continued in effect must be re- 



264 MARKETING AGREEMENTS 

drafted to provide a different machinery for the setting 
up of local supervisory agencies. In this process attention 
will also be given to a second matter, namely, a procedure 
by which specific action in pursuance of a market adjust- 
ment plan shall be in legal form the personal act of the 
Secretary. Officials of the Adjustment Administration 
have not yet decided whether, in order to comply with the 
amended law, it will be necessary that all prorates or other 
specific actions likely to involve subsequent enforcement 
proceedings will have to be issued as specific orders of the 
Secretary or whether as in the past such orders may be 
issued by control committees, with the formal approval 
of the Secretary. 21 Clearly the former practice of having 
them issue regulations which would stand unless or until 
disapproved by the Secretary will not in future be per- 
missible. 

The third administrative change grows out of the strik- 
ing out of the licensing section from the new law. Instead 
of putting all handlers of a commodity under license to 
observe the terms of a marketing agreement under the 
direction of the local control committee, there must in 
future be a general Secretary's order directing these hand- 
lers to comply with the terms of the marketing plan set 
forth in the marketing agreement. This may be an agree- 

21 There is additional reason for having quotas and allotments made by the 
Secretary. This grows out of a provision included in the 1934 (Sugar Act) 
amendments which provided triple damages in the case of violations in the 
following section: "Sec. 8 (A) (5). Any person willfully exceeding any 
quota or allotment fixed for him under this title by the Secretary of Agricul- 
ture, and any other person knowingly participating, shall forfeit to the United 
States a sum equal to three times the current market value of such excess, 
which forfeiture shall be recoverable in a civil suit brought in the name of the 
United States." For the government to be in a strong legal position in any 
recovery suit, it must be clear that the allotment was made by the Secretary's 
direct action and not by some other agency acting under a more or less general 
and remote delegation of authority. 



ADMINISTRATIVE PROBLEMS 265 

ment drawn prior to or contemporaneously with the form- 
ulation of the Secretary's order or one which would be 
prepared subsequently if the Secretary issued his order 
under the "reserve power." 22 Besides this initial general 
order embodying the comprehensive statement of the mar- 
keting plan, there will probably be subsequent orders 
covering specific actions dealing with prorates, ship- 
ping holidays, grade limitations, and the like, although 
it may be that with reference to some of these actions legal 
requirements will be met if the control committee ap- 
pointed by the Secretary issues such orders and each one 
receives the specific approval of the Secretary. Where 
figures setting a season prorate, packing quota, or per- 
centage of reserve tonnage are included in the general 
order, the alteration of such figures the following year or 
during the marketing season will have to be preceded by 
a public hearing. 

It would appear that a Secretary of bureaucratic leanings 
might, in following the letter of this new law, make the 
administration of market adjustment plans a strict and 
even arbitrary regimentation of the activities of local 
groups. On the other hand, there would seem to be no 
reason why the legal requirements under our constitu- 
tional form of government could not be fully observed and 
at the same time adjustment officials continue the spirit 
of local autonomy and democratic participation in the 
formulation of plans which has animated the administra- 

22 The act provides that an agreement will come into effect whenever 50 
per cent or more of the handlers of the commodity desire such an agreement. 
However, if such action cannot be secured on the part of one-half of the 
handlers, whereas two-thirds of the producers of the commodity desire a 
marketing plan, the Secretary may upon their request and with the approval 
of the President issue an order setting forth such marketing plan as he may 
formulate with the advice of producers and such handlers as are willing to 
participate. 



266 MARKETING AGREEMENTS 

tion of the act heretofore. What will be necessary is to 
develop still further the plans of decentralization sketched 
in the earlier parts of this chapter, make the field represen- 
tative a still more effective liasion officer between Wash- 
ington and the local group, and speed up the machinery 
through which plans tentatively formulated in the field 
can be promptly routed through the several officials who 
need to consider them prior to official signature by the 
Secretary. 23 Plans are already well advanced for working 
out such arrangements, and the redrawing of agreements 
to bring them into conformity with the amended act is in 
progress. 

23 Besides making it somewhat more difficult to continue the spirit of local 
autonomy in democratic participation, it is evident that the new procedure 
will entail a larger amount of routine work on Adjustment Administration 
officials and the office of the Secretary of Agriculture. 



CHAPTER XII 

ENFORCEMENT AND LEGALITY 

In spite of the Adjustment Administration's policy of 
putting into marketing agreements only such provisions as 
had met the approval of a substantial majority of handlers 
and producers — indeed, largely been worked out by them 
— adequate execution of the terms of the various mar- 
keting plans has presented somewhat serious problems. 
This has in some instances been due to dissatisfaction 
which persons who had at first been favorably disposed 
toward these programs later came to feel as to the results 
actually attained under them. 1 But in much larger degree 
it has been the result of disaffection on the part of licensees 
who were not participants in the formulation of a given 
agreement 2 and who, when brought under its jurisdiction 
by license, sought some avenue of escape. 

We noted in the preceding chapter the efforts made 
to draw such persons into harmonious working arrange- 
ments by giving them representation on the control com- 
mittees and by having both the local supervisory agencies 
and the field representatives of the AAA follow methods 
of face-to-face explanation and friendly persuasion. Be- 
yond efforts to secure voluntary compliance, however, it 

1 Perhaps the most important cause of such dissatisfaction was to be found 
among persons who had supported a given agreement on the assumption that 
its terms would be voluntarily observed by or enforced upon all their com- 
petitors. When later they found this not to be the case and themselves subject 
to unfair competition from violators, they were naturally irritated and tempted 
to join the ranks of the violators. 

2 Sometimes also even persons who did participate in the drawing up of 
agreements declined to sign and were subsequently brought under the market 
plan by the license. 

267 



268 MARKETING AGREEMENTS 

has been necessary to make provision for enforcing the 
market adjustment plans upon those who persisted in open 
or covert violation. To this end a separate Licensing and 
Enforcement Section was established under the initial or- 
ganization plan of the AAA. Under the reorganization 
effected in January 1934 this became a Field Investigation 
Section. Besides this, there are an Administrative Enforce- 
ment Section and a Litigation Section in the office of the 
Solicitor of the Department. 3 

ENFORCEMENT AGENCIES AND MEASURES 

It is the duty of the Field Investigation Section to keep 
informed as to infractions of agreements, licenses (or 
orders), and administrative rulings promulgated from 
Washington. Complaints from market administrators 
and control committees and information from field repre- 
sentatives of the Dairy and General Crops Sections come 
to this section and it proceeds to investigate alleged infrac- 
tions and if possible to bring them to an end. For this 
purpose, the section keeps a number of its men (now ap- 
proximately 25) in the field to make personal contacts with 
alleged violators; to investigate the precise character and 
extent of violations, together with the reasons and extenu- 
ating circumstances, if any; and to secure a friendly ad- 
justment if possible. For the great mass of minor infrac- 
tions, and many which are more serious, they have suc- 
ceeded in effecting satisfactory adjustment. When this 
proves impossible, the field men so advise the section in 
Washington and submit such evidence as they have col- 
lected in the course of their investigations. 4 

3 Prior to the administrative reorganization of February 1935, the two latter 
sections were units of the Legal Division of the AAA. 

4 It is the intention in this account of field investigation and enforcement to 
give an outline of the working arrangements set up rather than an idealized 



ENFORCEMENT AND LEGALITY 269 

On the basis of information forwarded by its investiga- 
tors in the field, the Washington staff of the section re- 
views the whole case and arrives at a decision as to the 
course it will recommend as a means of securing compli- 
ance. In so doing, this section confers with the commodity 
section involved (either Dairy or General Crops) and any 
recommendation for the initiation of enforcement pro- 
ceedings must have the approval of the commodity sec- 
tion as well as the Field Investigation Section. 

As to enforcement procedures, two courses are open: (1) 
administrative enforcement by invoking the penalties pro- 
vided in the act; and (2) judicial enforcement by resort to 
the courts of equity to obtain an injunction. 5 For the 
former, it was provided in the act of May 12, 1933 that for 
violation of the terms or conditions of a license the Secre- 
tary of Agriculture might, after due notice and oppor- 
tunity for hearing, revoke or suspend the license, and the 
licensee would be subject to a fine of not more than $1,000 
per day if he continued in business without a license. 6 

picture of the way in which these arrangements work. In practice, considerable 
difficulty was at first encountered in securing men of suitable training, exper- 
ience, and temperament to insure a prompt detection of violations and vigorous 
but discriminating accumulation of the evidence, affidavits, documents, or other 
materials necessary to establish a case. With the passage of time, the training 
of the men has been greatly improved and a staff developed which is adequate 
for detecting violations and securing evidence against violators. Obviously, a 
vigorous enforcement program and any strengthening of the statute tend to 
simplify the task of field investigation, whereas legislative uncertainty or lax 
enforcement policy tends to multiply infractions of license provisions and 
magnify the task of field investigation. 

5 There have also been several suits for collection of assessments. 

The original act contained no specific provision giving federal district courts 
jurisdiction to enforce the act. Hence the Secretary was not in a position to go 
to these courts seeking an injunction against violators. This defect was remedied 
by a provision included in the (Sugar Act) amendments of 1934. Agricultural 
Adjustment Act as Amended, Sec. 8 a (2) (E)(6). 

6 The Court, however, would impose a fine under this provision only as 
the result of a suit in which the government had convinced the Court that the 



270 MARKETING AGREEMENTS 

When the Field Investigation Section, with the concur- 
rence of the commodity section and the Legal Division, 
recommended that revocation proceedings be begun 7 
against a violator, an order usually issued in the name of 
the Secretary through the Administrative Enforcement 
Section, calling upon the violator to show cause why his li- 
cense should not be either suspended or revoked. Such 
"show cause" order was returnable within a "reasonable 
time" (ordinarily 10 to 15 days), and the mere issuance of 
the order frequently served to bring the violator into line. 
If he failed to make reply in satisfactory terms, a hearing 
on the specific charges set forth in the order to show cause 
was called under the direction of the Administrative En- 
forcement Section of the Solicitor's office. 8 

Here, again, the notice of hearing might impress the vio- 
lator sufficiently so that he would cease his violations and 
make such financial settlements as were necessary to 
remedy past violations. If not, the hearing would proceed 
before a presiding officer designated by the Secretary much 
after the manner of a court action, with legal counsel on 
both sides. The record of this hearing was given consider- 
ation by the presiding officer and by the administrative 
officials of the Adjustment Administration, and this some- 
times resulted in the exoneration of the alleged offender. 
In other cases, the offender might admit previous viola- 
tions but agree to comply in future and to make restitu- 
tion for past offenses. In some cases, the peculiar difficul- 
ties of a certain type of licensee in adapting his business to 

act was constitutional, the license properly drawn in conformity to the act, 
and the licensee had in fact violated such license. 

7 Sometimes the Legal Division is requested to send the violator a strong 
letter demanding compliance and threatening proceedings. Where this is done, 
compliance is often secured without resort to further measures. 

8 The procedure is laid down in General Regulations, AAA, Ser. 3, issued 
September 1933. 



ENFORCEMENT AND LEGALITY 271 

the precise requirements of a license have resulted in the 
modification of some of the terms of the license through 
amendment or in the issuance of new interpretative in- 
structions to supervising agencies. The policy has been to 
use every means possible to secure compliance, but if no 
means of settlement can be worked out, the Solicitor and 
the Administrator recommend to the Secretary that he 
suspend or revoke the violator's license. 

The first license (Chicago milk) became effective on 
August 1, 1933 and the first "show cause" order was issued 
under that same license on August 29.° From that time 
up to June 1, 1935, control committees, milk market ad- 
ministrators, and others made formal complaints to 
the number of 653. Of this total, 480 related to fluid 
milk 10 and 173 to other products. Of these 653 com- 
plaints, 330 have been adjusted without resort to revoca- 
tion proceedings, and "show cause" orders were issued 
in the remaining 323 cases. 11 

9 For further discussion of the enforcement situation under fluid milk licenses, 
see John D. Black, The Dairy Industry and the AAA, pp. 102 ff., 134 ff. 

10 These complaints arose in 27 of the 50 licensed milk areas but the great 
majority of them were confined to five markets — Chicago, Boston, Los Angeles, 
Philadelphia, and St. Louis. There were 243 from Chicago alone. The 173 
complaints under licenses other than milk arose (though many of them were 
merely bookkeeping irregularities) under only 13 of the 32 licenses in this 
group (counting cling peaches, Florida citrus, and California asparagus each 
as one). The largest single number (37) arose under the California cling 
peach license, followed by 34 in Texas citrus, 31 in Florida citrus, 26 in 
Southern rice, 19 in Northwest deciduous tree fruits, 13 in California citrus, 
5 in California prunes, 3 in California raisins, and 1 each under dates, gum 
rosin and turpentine, walnuts, Tokay grapes, and ripe olives. 

11 Frequently, only a single type of violation was alleged, but often there 
were several. All told, there were 608 allegations under the 323 "show cause" 
orders. The most numerous alleged violation was failure to abide by resale price 
provisions (162) and minimum producer prices (52). Next in importance came 
failure to pay assessments to the control committee or market administrator. 
This violation was alleged in 136 cases and covered both failure to pay assess- 
ments for support of the work of the control committee or market adminis- 
trator's office and failure to pay into the equalization fund set up under several 



272 MARKETING AGREEMENTS 

Of these 323 cases, 59 were adjusted after issuance of the 
order but before hearing. In 264 cases, formal hearings 
have been held, with the following outcome: 

Fluid Milk General Crops 12 

Formal order of revocation, Formal order of revocation, 

suspension, or finding of suspension, or finding of 

serious violation 27 serious violation 26 

Abandoned (license termi- Same as above but followed 

nated) 108 by reinstatement based on 

Held in abeyance (adverse assurances of future corn- 
court decisions or pending pliance 4 

litigation) 12 Dismissed as unfounded . . 1 

Held in abeyance (compli- Dismissed (compliance se- 
ance secured) 42 cured) 4 

Dismissed as unfounded ... 2 Held in abeyance (compli- 

A waiting decision of Secre- ance secured) 2 

tary 2 Awaiting decision of Secre- 

Proceedings continued .... 1 tary 32 

Referred to Department of 
Justice 1 

We turn now to the second enforcement procedure, 
namely judicial enforcement. It is not strictly an alterna- 
tive to administrative enforcement but supplements it in 
the hope of obtaining more prompt results. The method 
of field investigation, hearing, findings, recommendation, 

of the milk licenses (see p. 202). There were 135 allegations with reference 
to accounts, reports, and records, of which 17 were for failure to keep proper 
books and accounts, 93 for failure to file reports, and 25 for refusal of access 
to books and records. In 37 cases there was alleged failure to observe require- 
ments of the license as to inspection certificates, containers, and labels, or 
classification of. the product. In 3 instances under the prune agreement there 
was alleged failure to abide by the license agreement as to reserve tonnage, and 
under various licenses there was a total of 51 allegations of failure to observe 
producers' quotas. Under milk licenses there were 20 allegations of failure to 
limit purchases to producers having a "base" (see p. 203). Filially, there were 
9 alleged failures of handlers to furnish, when requested by the Secretary, 
bonds to secure payment to producers for milk delivered. 
12 Rice included. 



ENFORCEMENT AND LEGALITY 273 

and suspension or cancellation of licenses is time consum- 
ing. Often the situation is such, particularly with perish- 
able crops having a short shipping or processing season, 
that delay would rob revocation proceedings of any reme- 
dial value. The objective of a marketing plan might be 
wholly lost within a few weeks or even days, whereas the 
careful procedure of a revocation action ordinarily takes 
from six weeks to as many months. Hence, in order to 
check violations promptly when speed seemed essential, 13 
the Adjustment Administration in numerous instances 
turned to courts of equity and sought to enjoin licensees 
from the continuation of practices in violation of the terms 
of their licenses. 14 When such action was taken, the viola- 

13 Besides the matter of speed, there has also been the feeling in adminis- 
trative circles that the revocation of a license constitutes too drastic a penalty 
for any except the most flagrant and intentional violations. In the amendments 
introduced in the spring of 1935, it was provided that the violator, instead of 
having his license revoked, should be subject to a fine of "not less than $50 or 
more than $500 for each such violation, each day during which the violation 
continues being deemed a separate violation." The amendments as finally passed 
carried this same penalty, with reference to "orders." 

14 This procedure was first employed in connection with the license for can- 
ners of California cling peaches. Within a few days after the issuance of this 
license (Aug. 17, 1933), it was noted that certain of the licensees were violating 
their agreements by failing to limit their pack to the quotas assigned them. 
The government promptly served notice that it would suspend the license of any 
canner who failed ,to comply. On September 8, Secretary Wallace issued an 
order to one canning company which had been a flagrant violator to show 
cause why the license should not be revoked. The company was given until 
September 21 to show cause. It immediately advertised for extra help and 
began operating three shifts a day with a view to canning as many peaches as 
possible before a restraining order could be issued against it. In this situation, 
the representative of the Department sought authorization from Washington 
to secure an injunction against this canner. The Attorney General's office was 
unwilling to take action on this request until it had carefully investigated the 
situation, lest by acting hastily it might open the way to an adverse ruling 
which would prejudice the whole enforcement situation. Finally, however, 
one of its staff was dispatched to California and a temporary injunction secured 
on September 19. In the Federal District Court at San Francisco on October 2 
this injunction was made permanent. AAA Press Releases Nos. 571-34 and 
784-34. 



274 MARKETING AGREEMENTS 

tor naturally sought to defend his position by attacking the 
legality of the statute or the licenses issued under it. In 
other instances, licensees have taken the offensive in this 
judicial battle without waiting to be cited for violations of 
the license or, in cases where injunction proceedings had 
already been started by the Secretary, have filed a cross bill 
seeking to enjoin him from enforcement of the license. 

All told there have been (up to June i, 1935) 24 litiga- 
tions 15 under the marketing agreement and license pro- 
visions of the Agricultural Adjustment Act, 12 brought by 
the government and 12 by handlers seeking to prevent 
enforcement of licenses. These actions, both offensive and 
defensive, raised numerous issues with reference to 
the legality of the licensing procedure and the constitu- 
tionality of the act. Adjudicated in numerous lower 
courts, they resulted in several favorable decisions but 
also in a number which were adverse. In 17 of the 24 cases 
decided in the lower courts, the decision did not turn on 
the issue of constitutionality, but in 7 cases, constitutional 
questions were passed upon. 

The statute has not yet come before the Supreme Court 
of the United States, but that court's recent decision in the 
Schechter case involving somewhat analogous issues under 
the National Industrial Recovery Act was influential in 
modifying the form of certain amendments to the Ad- 
justment Act which were already pending in Congress. 

15 Seventeen of these cases related to fluid milk in 10 markets and 7 to 
licenses covering other commodities (citrus, cling peaches, Southern rice, and 
Northwest deciduous fruit). Fourteen fluid milk cases (7 of them under the 
Boston license) and 13 others (6 under the Texas citrus license) were pending 
on May 31. 

Although the several tabulations of enforcement actions in this chapter are 
brought only to June 1, this practically completes the story. After the 
Schechter decision (May 27), most courts manifested such misgivings as to the 
constitutionality of the act that enforcement proceedings were brought to a 
virtual standstill pending the action of Congress in amending the statute. 



ENFORCEMENT AND LEGALITY 275 

We shall therefore examine the major issues dealt with in 
such judicial decisions as have been rendered in license en- 
forcement cases and the changes in the statute which have 
been effected by the amendments passed on August 24, 
1935- 

DUE PROCESS AND INTERSTATE COMMERCE 

First, we find the familiar argument that the devices 
and practices undertaken under the act result in the taking 
of private property without due process of law. This issue 
arose in the first case 16 to be adjudicated and was decided 
in favor of the act on broad grounds of national welfare. 
After stating that the "Congress has made a legislative 
finding that a national emergency exists," the opinion 
stated: 

Under conditions such as these the Court is bound to arrive at 
the conclusion that the peach industry is affected with a national 
public interest and that the Congress has the constitutional power 
to adopt appropriate legislation to cure these evils. The due 
process clause in such a situation cannot properly be construed to 
obstruct the national policy. Neither the Constitution nor the 
due process clause requires the perpetuation of conditions which 
impair the national vitality. 

To adopt the view that the Constitution is static and that it 
does not permit Congress from time to time to take such steps as 
may reasonably be deemed appropriate to the economic preserva- 
tion of the country, is to insist that the Constitution was created 
containing the seeds of its own destruction. This Court will not 
subscribe to such a view. 

Other courts, however, have not been so favorably dis- 
posed. In United States v. Seven Oa\s Dairy Company™ 
the government argued that, since full regulation of the 

16 United States of America and Henry A. Wallace v. Caltstan Packers, Inc., 
Southern Division, U. S. District Court for the Northern District of California, 
4 Fed. Supp. 660. 

17 District Court of United States, Mass., May 17, 1935, Equity No. 4068-69. 



276 MARKETING AGREEMENTS 

milk industry by a state had been upheld by the United 
States Supreme Court in Nebbia v. New Yor\ as "unob- 
jectionable under the due process clause, there is all the 
more reason for upholding the regulation of the dairy in- 
dustry under a nation-wide program, such as is exempli- 
fied in the AAA and the various milk licenses issued there- 
under." But the Court said: 

. . . statutes regulating prices have been struck down in several 
instances because they were held to contravene the due process 
clause of the Fourteenth Amendment. . . . The right to contract 
freely, without unreasonable restraint by government, is one of 
the fundamental liberties of the individual which is protected by 
the Fourteenth Amendment to the Constitution. . . . This liberty 
is also secured by the Fifth Amendment. ... It does not fol- 
low that because a state may have, in the stress of emergency, 
police power to regulate a business essentially private in its char- 
acter, that the national government, under the commerce clause, 
has the same power. One is exercising a granted power, and the 
other a reserved power. 18 

Courts have rather generally taken the position that 
what might properly be done by a state in the exercise of 
its police power may not lie within the power of the United 
States to do, since the latter may act only within the range 
of powers delegated to it by the states. Powers not specifi- 
cally delegated can be exercised only with reference to in- 
terstate or foreign commerce. Hence, attacks on AAA 
licenses have come to center chiefly around the question 
whether the business which they have sought to regulate 
is in fact interstate in character. 19 In eight fluid milk 

18 See also Royal Dairy Farms v. Henry A. Wallace, Nov. 16, 1934, 8 Fed. 
Supp. 975 and F. R. Black, "Does Due Process of Law Require an Advance 
Notice and Hearing before a License is Issued under the AAA?" University of 
Chicago Law Review, February 1935, Vol. 2, pp. 270-90. , 

19 Several recent articles are of particular interest in this connection, notably: 
Thomas Reed Powell, "Would the Supreme Court Block a Planned Economy?" 
Fortune, August 1935; John Dickinson, "Relations between the Nation and the 



ENFORCEMENT AND LEGALITY 277 

cases *? the violator has been upheld on the ground that 
he had been handling and selling within the bounds of a 
single state a product produced wholly within that state — 
a business which is no part of interstate commerce. 21 In 
United States v. Shissler, however, the government's con- 
tention as to the interstate character of the business was 
accepted, and in Seven Oa\s Dairy Company v. Wallace 
the Court seemed disposed to accept that view, although 



States," United States Law Week, J un e n> 1935; F. R. Black, "The Com- 
merce Clause and the New Deal," Cornell Law Quarterly, February 1935, 
Vol. 20, pp. 169-84; T. W. Cousens, "Use of the Federal Interstate Commerce 
Power to Regulate Matters within the States," Virginia Law Review, November 
1934, Vol 21, pp. 51-57; I. J. Williams, "Does the Commerce Clause Give 
Power to Dominate All Industry?" University of Pennsylvania Law Review, 
November 1934, Vol. 83, pp. 23-36; R. L. Stern, "That Commerce Which 
Concerns More States than One," Harvard Law Review, June 1934, Vol. 47, 
PP- !335-66; E. S. Corwin, "Congress' Power to Prohibit Commerce," Cornell 
Law Quarterly, June 1933, Vol. 18, pp. 477-506. 

20 Edge water Dairy Co. et al. v. Wallace, June 26, 1934, 7 Fed. Supp. 121; 
Columbus Milk, Producers Co-operative Association v. Wallace et al., Nov. 26, 
1934, 8 Fed. Supp. 1014; United States v. Neuendorf et al., Oct. 19, 1934, 
8 Fed. Supp. 403; United States v. Greenwood Dairy Farms, Inc., Sept. 27, 
1934, 8 Fed. Supp. 8398; Darger et al. v. Hill et al., Sept. 7, 1934, 76 Fed. 
2d 198; Kurtz v. Berdie, Sept. 7, 1934, 75 Fed. 2d 898; Douglas v. Wallace, 
Oct. 17, 1934, 8 Fed. Supp. 379; Royal Farms Dairy v. Wallace, Nov. 16, 1934, 
8 Fed. Supp. 975. 

21 In three of these cases (Douglas, Edgewater Dairy, and Columbus Milk 
Producers) the Court argued that what the license did in fact was to regulate 
the production of milk, that is, the business of individual farmers which in the 
nature of the case was an intrastate matter. Such a view places large emphasis 
upon such indirect influence as any part of the marketing system supported by 
a license (such as the base and surplus plan) has upon milk production. With 
almost equal plausibility, it might be argued that the fixing of railroad freight 
rates upon commodities moving from various local production points con- 
stitutes control of production of such commodities. Particular manufacturers 
and their local chambers of commerce are constantly seeking to secure the 
adjustment of rate structures in order to escape the disadvantageous effect of 
a differential or to secure some particular advantage under the rate structure. 
It has not, however, apparently ever been argued that, because of the direct 
effect of such regulation upon productive conditions, freight rate regulation 
constitutes production control and does not properly come within the inter- 
state commerce powers granted in the Constitution. 



278 MARKETING AGREEMENTS 

not regarding itself as called upon to pass upon that issue. 
The trend of judicial decision on the interstate com- 
merce issue has seriously curtailed the ability of the AAA 
to carry through its market adjustment program. 22 The 
Dairy Section envisaged a comprehensive and harmonious 
adjustment of fluid milk and cream prices and such a 
systematic price structure is seriously impaired if all those 
milksheds whose boundaries lie within a single state have 
to be withdrawn from the market adjustment undertak- 
ing. In order to justify their claim to jurisdiction over all 
fluid milk markets, therefore, they have elaborated an 
argument to the effect that the milk, even of markets 
none of whose supply crosses state lines, is influenced by 
price-making forces nation-wide in extent. It is a well- 
known fact that fluctuations in consumption of whole 
milk in a given metropolitan market have a reciprocal 
effect upon the amount of milk skimmed for cream or 
used for ice cream or other milk products in that metro- 
politan area and that this in turn has direct repercussions 
on the amount of cream, ice-cream "mix," and other allied 
products which will move to that metropolitan consump- 
tion area from dairy regions, sometimes several hundred 
miles away, which are engaged primarily in the produc- 
tion of dairy products, such as butter, cheese, and evap- 
orated milk. Since these latter lines of business are pre- 
dominantly interstate in character, it is argued that the 
fluid milk business of every urban center in the country 
is in the true economic sense an integral part of interstate 
commerce. 

22 The issue has been largely limited to fluid milk licenses, since the business 
in fresh fruits and vegetables, dried fruits, nuts, and other commodities covered 
by the non-milk licenses is so predominantly and obviously interstate in charac- 
ter. With reference to canned products (peaches, ripe olives, and asparagus) 
the issue is not so clear and we shall return to it shortly in connection with 
our discussion of the fluid milk issue. 



ENFORCEMENT AND LEGALITY 279 

The lower courts have in several instances rejected this 
argument and in no case thus far has it come to the Su- 
preme Court of the United States for decision. In many 
quarters, however, it has been assumed that the decision 
in the Schechter case clearly foreshadows an adverse de- 
cision were such an issue before that Court. The follow- 
ing passage from the Court's opinion is cited in support of 
this view: 

Much is made of the fact that almost all the poultry coming to 
New York is sent there from other states. But the code provisions 
as here applied do not concern the transportation of the poultry 
from other states to New York, or the transaction of the commis- 
sion men or others to whom it is consigned, or the sales made by 
such consignees to defendants. When defendants had made their 
purchases . . . the poultry was trucked to their slaughter houses in 
Brooklyn for local disposition. The interstate transactions in rela- 
tion to that poultry then ended. Defendants held the poultry at 
their slaughter house markets for slaughter and local sale to retail 
dealers and butchers who in turn sold directly to consumers. 
Neither the slaughtering nor the sales by defendants were trans- 
actions in interstate commerce. . . . The mere fact that there may 
be a constant flow of commodities into a state does not mean that 
the flow continues after the property has arrived and has become 
commingled with the mass of property within the state and is 
there held solely for local disposition and use. So far as the poultry 
here in question is concerned, the flow in interstate commerce had 
ceased. The poultry had come to a permanent rest within the 
state. 

While the soundness of this view can hardly be ques- 
tioned under the set of facts which the Court was then 
considering, it is not to be forgotten that the opinion pro- 
ceeded to a broad view as to the federal government's 
power to regulate activities which merely "affect" inter- 
state commerce. It was said : 

The power of Congress extends not only to the regulation of 
transactions which are part of interstate commerce, but to the 



2 8o MARKETING AGREEMENTS 

protection of that commerce from injury. It matters not that the 
injury may be due to the conduct of those engaged in intrastate 
operations. ... In determining how far the federal government 
may go in controlling intrastate transactions upon the ground that 
they "aflect" interstate commerce, there is a necessary and well- 
established distinction between direct and indirect effects. The 
precise line can be drawn only as individual cases arise, but the 
distinction is clear in principle. . . . Where the effect of intrastate 
transactions upon interstate commerce is merely indirect, such 
transactions remain within the domain of state power. If the 
commerce clause were construed to reach all enterprises and trans- 
actions which could be said to have an indirect effect upon inter- 
state commerce, the federal authority would embrace practically 
all the activities of the people and the authority of the state over 
its domestic concerns would exist only by sufferance of the federal 
government. 

In the light of the remark that "the precise line can be 
drawn only as individual cases arise," it would seem pre- 
mature to assume that the Court would be certain to deny 
the validity of the AAA's claim that the operation of a 
marketing plan for fluid milk and cream in the city of 
Baltimore or Indianapolis is an inseparable part of the 
nation's interstate commerce in dairy products. 

As for market plans designed to regulate the handling 
of fresh fruits and vegetables, dried fruit, and nuts, it is 
obvious that they concern commodities definitely in the 
current of interstate commerce. 23 When it comes to 
canned fruits and vegetables, it might be argued that the 
business of a cannery is a purely intrastate business and 
that the interstate commerce in canned fruits and vege- 
tables is a distinct business which does not begin until the 
finished product is loaded in the cars for shipment. 

23 It is interesting in this connection that the California state prorate act 
has been declared unconstitutional in a case involving lemon proration. The 
decision of the lower court was promptly upheld by the District Court of 
Appeals on the ground that it was an attempt to regulate interstate commerce. 



ENFORCEMENT AND LEGALITY 281 

However, the interstate character of the business covered 
by the three agreements in this group begins with the can- 
ning or even the growing of the product. In the language 
of the Schechter opinion, these commodities do not come 
"to a permanent rest within the state" at the canning fac- 
tory but are "held, used, or sold ... in relation to . . . further 
transactions in interstate commerce and . . . destined for 
transportation to other states." The Court sharply dis- 
tinguished its decision with reference to the business of the 
Schechter firm from decisions which deal "with a stream 
of interstate commerce — where goods come to rest within 
a state temporarily and are later to go forward in interstate 
commerce — and with the regulation of transactions in- 
volved in that practical continuity of movement" and cited 
six decisions upholding laws regulating such business. 
Statutes of this character licensing handlers of agricultural 
commodities include the Cotton Standards Act, the Grain 
Standards Act, the United States Warehouse Act, the 
Packers and Stockyards Control Act, the Grain Futures 
Act, and the Perishable Agricultural Commodities Act. 
The broad definition of interstate commerce on which 
these measures rely may be seen from a reading of Section 
1 (8) of the last named: 

A transaction in respect of any perishable agricultural commo- 
dity shall be considered in interstate or foreign commerce if such 
commodity is part of that current of commerce usual in the trade 
in that commodity whereby such commodity and/or the products 
of such commodity are sent from one state with the expectation 
that they will end their transit, after purchase, in another, includ- 
ing, in addition to cases within the above general description, all 
cases where sale is either for shipment to another state, or for pro- 
cessing within the state and the shipment outside the state of the 
products resulting from such processing. 

In the Adjustment Act as first passed, both the market- 



282 MARKETING AGREEMENTS 

ing agreement and licensing clauses were made to apply 
to persons "engaged in the handling in the current of in- 
terstate or foreign commerce of any agricultural com- 
modity or product thereof." As a result of early attacks 
on licenses drawn under this clause, an attempt was made 
to broaden the definition of interstate commerce in the 
amendments which were passed in April 1934. One of 
these amendments expanded the phrase "in the current of 
interstate commerce" to read "in the current of or in com- 
petition with, or so as to burden, obstruct, or in any way 
affect, interstate or foreign commerce." This new phrase- 
ology was accepted for the marketing agreement clause — 
Section 8 (2) — but the attempt to include it in the licens- 
ing provision — Section 8 (3) — resulted in a storm of pro- 
test on the ground that this would unduly enlarge the 
powers of the Secretary of Agriculture, and the section 
remained as originally written. Since the licensing pro- 
vision in most cases is the only really effective means of 
carrying out any marketing plan, the amendment of 
Section 8 (2) was virtually meaningless and, in order to 
make a case, it was necessary to convince courts that the 
commodities brought under license were properly to be 
regarded as "in the current of interstate or foreign com- 
merce." 

In the new amendments introduced in the spring of 
1935, the license clause was made to read the same as the 
marketing agreement clause as amended in 1934, that is, 
"in the current of or in competition with?* or so as to 
burden, obstruct, or in any way affect interstate or foreign 
commerce." Following the handing down of the opinion 
in the Schechter case, however, the marketing agreement 

24 In the committee print of the amended bill, this wording was changed 
to read "in substantial competition with." Before the bill was formally in- 
troduced, the whole phrase was stricken out. 



ENFORCEMENT AND LEGALITY 283 

section was again amended to apply "only with respect to 
such handling as is in the current of interstate or foreign 
commerce, or as directly burdens, obstructs, or affects in- 
terstate or foreign commerce in such commodity," and the 
section on orders (see Appendix C) which supersedes the 
old license section is couched in identical terms. This 
would seem to bring the phraseology of the act clearly into 
accord with the views expressed by the Supreme Court of 
the United States. 

DELEGATION OF LEGISLATIVE POWER 

We have had occasion to refer in the opening chapters 
of this book to the fact that the powers conferred upon the 
Secretary of Agriculture under Sections 8 (2) and 8 (3) of 
the Adjustment Act were of the most vague and general 
sort, that quite divergent views were entertained as to just 
what steps toward improving the farmer's economic posi- 
tion might be undertaken under these measures, and that 
in practice the Adjustment Administration elected to fol- 
low a rather aggressive course in developing measures of 
group marketing designed to advance farmers' prices as 
rapidly as possible to or toward the general goal of pre-war 
parity set up in the Declaration of Policy enunciated in 
Section 2 of the act. 

The marketing agreement section of the original act 
simply authorized the Secretary "to enter into marketing 
agreements with processors, associations of producers. . . ." 
Except that they were "to effectuate the declared policy of 
the act," there was no stipulation as to what this thing re- 
ferred to as a marketing agreement was or what provisions 
it might contain. In the process of administering the act, 
agreements of varied and in many cases elaborate char- 
acter were developed, and the practice was immediately 



284 MARKETING AGREEMENTS 

adopted of making these agreements binding upon non- 
signers through the issuance of a license. In the case of 
the license provision, however, the delegation of legislative 
authority had been slightly more explicit than that in the 
marketing agreement section. It provided that "licenses 
shall be subject to such terms and conditions, not in con- 
flict with existing acts of Congress or regulations pursuant 
thereto, as may be necessary to eliminate unfair practices 
or charges that prevent or tend to prevent the effectuation 
of the declared policy and the restoration of normal eco- 
nomic conditions in the marketing of such commodities 
or products and the financing thereof." 

Two questions were open therefore: (i) whether there 
was a valid delegation of authority to the Secretary to make 
marketing agreements without specifying what they 
should cover or the methods of marketing adjustment 
which the Congress intended to authorize; and (2) 
whether there had in fact been any authorization to the 
Secretary of Agriculture to use the licensing power in sup- 
port of the comprehensive devices for regulating the dis- 
tribution of agricultural commodities which were em- 
bodied in the various marketing agreements. Could such 
arrangements be reasonably construed as "necessary to 
eliminate unfair trade practices or charges that prevent 
or tend to prevent" the return to parity prices and the 
"restoration of normal economic conditions" in the mar- 
kets? When judges came to look at all critically at this 
situation, they felt that it did not. With reference to the 
price-fixing provisions of the Baltimore milk license, 25 
Judge Chesnut came to the conclusion "that if Congress 
had intended to give the power to the Secretary it would 

25 Royal Farms Dairy, Inc. v. Henry A. Wallace, District Court of Maryland, 
Equity No. 2265, Nov. 16, 1934. 



ENFORCEMENT AND LEGALITY 285 

have been definitely expressed rather than left to uncertain 
implication by the use of such a general phrase as the 
'elimination of unfair charges.' " And as to the license as 
a whole, he said: 

From this comprehensive review of the main features of the 
license plan, after considering its relation to the act as a whole, and 
with special reference to the scope of the power delegated to the 
Secretary by Sub-section (3) as to what terms and provisions the 
license may properly include, I reach the conclusion that the license 
as formulated is not within the statutory power delegated to the 
Secretary. 

Similarly, in the Seven Oaks Dairy Company case, it was 
held that: 

The burden rests heavily on plaintiffs (the government) to 
remove substantial doubts respecting the authority of the Secre- 
tary of Agriculture, especially since the act fails in express terms 
to delegate to him authority to fix prices as a condition of his 
license. This omission in the act has been deemed adequate ground 
for denying the existence of any such authority. . . . The license 
must be held to be void and unenforceable for the reasons . . . that 
its scope has been carried beyond the limits of the law by regi- 
menting production and fixing prices with respect to transactions 
that have no substantial or direct relation to interstate commerce. 

In other cases, likewise, it has been argued that Congress 
could not abrogate its legislative function of specifying pre- 
cisely those things which it intended that an executive de- 
partment should do in carrying out the declared policy, 
and when the analogous issue arose in the Schechter case, 
the Court definitely took an adverse position to executive 
action without specifically delegated authority, saying: 

The Congress is not permitted to abdicate or to transfer to 
others the essential legislative functions with which it is thus vested. 
We have repeatedly recognized the necessity of adapting legisla- 
tion to complex conditions involving a host of details with which 
the national legislature cannot deal directly. We pointed out in 



286 MARKETING AGREEMENTS 

the Panama Co. case that the Constitution has never been regarded 
as denying Congress the necessary resources of flexibility and prac- 
ticality, which will enable it to perform its function in laying 
down policies and establishing standards, while leaving to selected 
instrumentalities the making of subordinate rules within prescribed 
limits and the determination of facts to which the policy as de- 
clared by the legislature is to apply. But we said that the constant 
recognition of the necessity and validity of such provisions, and 
the wide range of administrative authority which has been de- 
veloped by means of them, cannot be allowed to obscure the limita- 
tions of the authority to delegate, if our constitutional system is to 
be maintained. 

In the light of this decision, the Adjustment Administra- 
tion decided that it would be wise to "spell out" in the 
statute the precise powers which Congress should author- 
ize it to perform under marketing agreements and licenses. 
A year and a half of operating experience under the act 
had given administrative officials a much clearer under- 
standing as to the types of activity which could be most 
effective in promoting the desired end of parity prices and 
the list of enumerated powers which they included in the 
amendments was substantially a statement of the various 
devices employed during this year and a half of operation. 
The full text of these amendments is to be found in Ap- 
pendix C, but the principal provisions may be briefly de- 
cribed here. They fall into three classes — those applicable 
to milk, those applicable to fruits and vegetables, and those 
applicable to both. As for milk, the matters which may 
properly be covered include classifying milk according to 
use and payment under a uniform class-price system, 
or payment of a "blended price," equalization payments 
between handlers, a waiting period for new producers, 
checking of weights and tests, base and surplus plans, and 
minimum producers' prices. For "other commodities," au- 






ENFORCEMENT AND LEGALITY 287 

thority is granted for grade, size, and quantity limitations; 
allotment of quotas to handlers and to producers ; proration 
of shipments and equalization of losses on surplus not mar- 
keted or diverted to lower price uses; but not minimum 
prices to producers and resale prices. With reference to all 
commodities there may be provision against unfair compe- 
tition or trade practices, price filing, and arrangements for 
setting up local supervisory bodies. 

From the time of the decision in the "hot oil" 26 case 
forward there had also been a strong doubt as to whether 
such large regulatory powers, even if properly delegated 
in specific terms by the Congress to the Secretary of Agri- 
culture for execution of its declared policy, could be by 
him delegated to private agencies such as control commit- 
tees or other local supervisory agencies. In our chapter on 
administrative problems and procedures and elsewhere, 
we have stressed the strong desire of the Secretary of Agri- 
culture and the Adjustment Administration to carry out 
the act in a spirit of "economic democracy," giving a large 
degree of local autonomy to producers and handlers of 
agricultural commodities to formulate their own market- 
ing plans and to take the fullest possible measure of re- 
sponsibility in carrying these plans into operation. Laud- 
able and administratively practical as this course was, it 
led to a situation in which private bodies issued orders 
having essentially the force of law and which the govern- 
ment was called upon to enforce and defend in the courts. 

Viewing the government claims with reference to in- 
dustry self-government under the NRA somewhat criti- 
cally, the Supreme Court in the Schechter case asked: 
"Would it be seriously contended that Congress should 
delegate its authority to trade or industrial associations or 

26 Panama Refining Co. v. Ryan, 293 U. S. 388. 



288 MARKETING AGREEMENTS 

groups so as to empower them to enact the laws they deem 
to be wise and beneficent for the rehabilitation and expan- 
sion of their trade or industry ? . . . And could an effort 
of that sort be made valid by such a preface of generalities 
as to permissible aims as we find in Section i of Title i ?" 
In answer to these questions, it is to be remembered that 
the statement of aims in the Adjustment Act is consider- 
ably more explicit than the generalities of Section i of Title 
i of the Recovery Act. Of more importance, however, is 
the contrast between the notorious looseness of administra- 
tion under NRA and the administrative care with which 
the Agricultural Adjustment Administration provided 
that the terms of all agreements and licenses should be 
worked out with the collaboration of the AAA staff and 
be given a real rather than formal approval by section 
heads, the Administrator, and in many cases even the Sec- 
retary personally before being submitted for signature. 
Perhaps of still more importance are the provisions writ- 
ten into licenses, agreements, and regulations whereby acts 
of the local supervisory bodies must be promptly reported 
to the Secretary of Agriculture and are subject to his ap- 
proval or disapproval. These provisions, taken with the 
system of field representatives discussed in the preceding 
chapter, meant that the Secretary did not turn the regula- 
tion of the industry over to trade groups not responsible to 
him but kept the reins of control in his own hands 2T at the 

27 As with most large administrative undertakings, in particular instances 
there have unquestionably been numerous slips in procedure which resulted in 
action being taken outside of regulations or in the absence of any specific regu- 
lation. This was particularly true in the early days when pressure for action 
was very acute and before time had revealed just what situations had to be met 
and the nature of the administrative rulings which would be necessary to cover 
the various cases. Undoubtedly, the pointed admonition with reference to such 
matters given by the Supreme Court in its decision on the Panama oil case 
caused the AAA to scrutinize again and improve its handling of these details. 

Furthermore, what is said in this paragraph applies primarily to the admin- 



ENFORCEMENT AND LEGALITY 289 

same time that he utilized the possibilities of helpful and 
informed participation by these trade representatives. 

But however good or bad the position of AAA licenses 
under the old act, the Secretary of Agriculture and the 
Adjustment Administration decided, in the light of the 
position taken by the United States Supreme Court with 
reference to delegation of authority in the Panama case 
and the Schechter case, to abandon the license as a means 
of carrying out the marketing plan 28 and to substitute 
therefor "Secretary's orders." 

In the hope of retaining the constructive participation of 
local interests as fully as possible, the marketing agree- 
ment is continued as the instrument in which the market- 
ing plan developed through the collaboration of local in- 
terests and representatives of the Adjustment Administra- 



istrative situation with reference to special crops licenses rather than that found 
under fluid milk licenses. There, as we have seen, the local committees have 
never been brought to an effective state of functioning. While market admin- 
istrators directly representing the Secretary have been installed in the various 
markets, they have not in general established intimate and effective working 
relationships with the commercial agencies in their markets. In many places, 
the situation has lapsed back to that obtaining before the coming of the AAA, 
with the market actually run under the joint influence of producer co-operatives 
and the large distributors' organizations, with the Secretary neither promptly 
and fully informed, nor effectively in control of the situation. 

28 In the first draft of the 1935 amendments (prior to the Schechter decision) 
the Adjustment Administration had broadened the statement with reference 
to the licensing power so that it might be invoked not merely to eliminate un- 
fair practices or charges but also "to make effective any marketing plan set 
forth in any marketing agreement . . . signed by the persons handling not less 
than 50 per centum of the volume of business done in the respective classes of 
commercial activity specified in such agreement" or with the approval of the 
President even if the support of less than 50 per cent of the industry could be 
secured, provided it is approved by at least two-thirds of the producers and the 
Secretary determines it to be the only "practical means of advancing the interests 
of producers of such commodities pursuant to the declared policy." As will 
appear from a reading of the present amendments (Appendix C), this three- 
fold distinction has been preserved under the system of "Secretary's orders." 



2 9 o MARKETING AGREEMENTS 

tion is set forth. Under this as a constitution, local super- 
visory bodies will be set up by appointment of the Secre- 
tary, and they will deliberate and decide upon the course 
of action which in their judgment would best promote 
their effort to secure parity prices. The essential difference 
in procedure 29 will be that prorates, shipping holidays, 
grade restrictions, assessments, minimum prices, or other 
measures promulgated in accordance with this plan 
will not be formally upon order of the chairman and secre- 
tary of the control committee (subject to the veto of the 
Secretary of Agriculture) but will probably be under an 
order of the Secretary. 

PROSPECTS OF ENFORCEMENT IN THE FUTURE 

It is the theory of the draftsmen of these provisions 
that under the amended act Congress has expressly exer- 
cised its legislative discretion in favor of the use of any or 
all of a comprehensive and specific list of marketing and 
price-determining devices; that since it cannot in the nature 
of the case take legislative action as to the precise device to 
be used in a given case or the precise time at which it shall 
be applied, it has authorized the Secretary through his duly 
appointed representatives to make such determination and 
to apply any of the prescribed measures when and as he 

29 The amendments likewise alter the scope of the act. Whereas the old 
agreement and license provisions related to any agricultural commodity, the 
new "Secretary's orders" provisions apply only "to milk, fruits (including 
pecans and walnuts but not including apples and not including fruits, other 
than olives, for canning), tobacco, vegetables (not including vegetables, other 
than asparagus, for canning), soybeans, and naval stores as included in the Naval 
Stores Act." The exclusion of canning crops was effected as a result of the 
resolution of protest adopted by the National Canners' Association at a special 
meeting assembled in Washington in May. The exclusion of apples is under- 
stood to have resulted from the personal efforts of Senator Byrd of Virginia, 
long an opponent of the AAA and reputed to be the largest single apple pro- 
ducer east of the Rocky Mountains. Although they had not previously been 
parties to a marketing agreement, soybean interests were desirous of being 
included in the act. 



ENFORCEMENT AND LEGALITY 291 

"has reason to believe that the issuance of an order [em- 
bodying such measures] will tend to effectuate the declared 
policy of this title with respect to any commodity or pro- 
duct thereof specified" in the amended act. Such an order 
issues only after public hearing and is based "upon the 
evidence introduced at such hearing (in addition to such 
other findings as may be specifically required [by the 
act])." In the hope of continuing the helpful participation 
of many local interests, and in view of the complexity of 
the devices involved, numerous sections of the act, instead 
of laying down a definite rule of procedure with all the in- 
adequacy and inflexibility which it would entail, simply 
provide that the Secretary may set up an auxiliary agency 
for determining the course to be taken. Thus, instead of 
providing that the Secretary through his administrative 
officers or assistants must prorate shipments, hold reserve 
tonnages, allot quotas, or take any other of the steps au- 
thorized, the law provides that his powers include "limit- 
ing or providing methods for the limitation of the total 
quantity of any such commodity . . . allotting, or providing 
methods for allotting the amount of such commodity. . . , 
determining, or providing methods for determining the 
existence and extent of the surplus of any such commod- 
ity. . . ." Thus, there would be a practical division of labor 
between local interests intimately informed as to the 
operative conditions within an industry and official repre- 
sentatives of the Secretary of Agriculture in the Adjust- 
ment Administration in the complicated task of carrying 
into practical operation the measures affirmatively set 
forth by Congress in the act. We have noted, however, 
in our discussion of administrative problems (page 264) 
that it will probably be necessary to have quotas and allot- 
ments issue directly from the Secretary. 

The vagueness and inadequacy of the market adjust- 



292 MARKETING AGREEMENTS 

ment provisions of the act of May 12, 1933 and the lack 
of articulation between Sections 8 (2) and 8 (3) were 
the cause of a great deal of confusion in the Adjustment 
Administration and led to a certain amount of friction 
between the various commodity sections and the General 
Counsel's office. Men in the commodity sections had 
rather positive ideas as to the kinds of marketing plans 
they wanted put in operation and were inclined to assume 
that the broad and loose statements of the marketing agree- 
ment section of the act gave them a free hand to proceed 
with these plans. The General Counsel, while manifest- 
ing every indication of a desire to see broad powers exer- 
cised under the act, was concerned to see that the precise 
terms of agreements and licenses were so definitely related 
to the economic conditions and needs in the several in- 
dustries as to present strong cases when eventually they 
would be brought before the courts for review. 

Policy with reference to litigation had to win the ap- 
proval of the Department of justice, and considerable 
difference of opinion developed among the various law- 
yers. On one side were those who urged a "safe" policy 
with a minimum risk of having the act declared uncon- 
stitutional even though its usefulness might be seriously 
restricted. On the other side were those who wanted to 
follow an aggressive policy of broad use of the powers 
sketched in the act, and, when litigation arose, to rely 
upon the presentation of a case so economically impreg- 
nable as to assure a broad constitutional interpretation by 
the Court. 

The Department of Justice was naturally concerned 
with the problem of avoiding defeat for any major part 
of the New Deal legislation. As a matter of policy, it 
decided it would be better to have as long a period of time 



ENFORCEMENT AND LEGALITY 293 

as possible elapse before any of the key statutes were sub- 
jected to a final test in the courts. Even then, it was 
planned to present first a case in which the interstate 
character of the business was unequivocal. On this 
ground, cases under the Agricultural Adjustment Act 
were to be deferred to second or third place. Meanwhile, 
it was hoped that the actual operation of the agreements 
and licenses would have demonstrated their reasonable- 
ness and conformity with the broad policies enunciated in 
the act. 

Advocates of a different strategy have argued that it 
would have been more astute to crowd enforcement cases 
along to the earliest possible adjudication on the theory 
that in the early days of the act the courts would have 
been most fully under the sway of the general economic 
emergency sentiment and most likely to give a broad in- 
terpretation with reference to the act and its constitution- 
ality. Perfecting amendments were drafted in the spring 
of 1934 and some of these were pressed by the Administra- 
tion. The bill that was finally introduced, however, was 
not very thoroughgoing, and even the amendments which 
it contained were only in part accepted by the Congress. 
In fact, the congressional refusal to accept the broader 
interstate commerce clause for inclusion in the licensing 
section left the enforcement position after April 7, 1934 
worse rather than better than it had been before. 

In the wake of unfavorable decisions in several lower 
courts, enforcement of the milk licenses in Baltimore, 
Chicago, Indianapolis, Providence, Oklahoma City, and 
Port Huron became practically impossible, 30 and the 
licenses were cancelled. After the handing down of the 

30 With reference to the milk license enforcement situation in general, see 
Black, The Dairy Industry and the AAA, Chap. V. 



294 MARKETING AGREEMENTS 

decision in the Schechter case, there was a still further 
tendency for licensees to disregard the terms of their 
licenses on the assumption that this NRA decision fore- 
shadowed an adverse ruling from the United States Su- 
preme Court as soon as any AAA licenses might come 
before it. Meanwhile, the California and Washington 
state prorate laws have been held unconstitutional in both 
the lower and the appellate courts, and the Oregon law 
by the lower courts. Thus enforcement of the old law was 
practically brought to a standstill during the summer 
months of 1935. 

Passage of the amendments of August 24 lays the foun- 
dation for such a reversal of this trend, but it must be 
followed by a prompt working out of the administrative 
arrangements to be put in force under the new system of 
"Secretary's orders." Likewise, there must be a further 
decentralization of administrative personnel so that the 
requirements under the amended act could be made en- 
tirely clear to all handlers and every violation discovered 
and followed through with a prompt and decisive cam- 
paign of enforcement. The Administration has nothing 
further to gain by any policy of delay. Congress has made 
such changes in the statute as it saw fit in the light of 
two years of operating experience and a variety of judicial 
opinions both on the AAA and the NRA. Unless the pro- 
cedures adopted by the Adjustment Administration can be 
established in the highest court as being in conformity 
with the present act, and this act as being in conformity 
with the Constitution, it seems clear that the use of these 
methods of "market adjustment" must be promptly 
abandoned. 



CHAPTER XIII 

REGULATORY PROVISIONS AND NEW 
MARKET MECHANISMS 

While higher prices paid by processors and consumers 
were looked to as the major source from which larger 
returns to farmers might be secured under marketing 
agreements and licenses, reductions in marketing charges 
were also considered. Framers of the act, legislators, and 
administrative officials have all advanced the thought that 
it would be feasible and appropriate for processors and 
trade agencies to forego some part of the margin between 
consumer and producer prices which, left to the free force 
of competition, they were able to secure for them- 
selves. 1 Besides restricting distributors' charges where this 

1 See pp. 17, 20, 199. Sometimes the argument runs chiefly in terms of need- 
less duplication of facilities, but generally there is a belief explicit or implicit that 
superfluous facilities are the accompaniment of high marketing charges or wide 
spreads and that reducing these would remove excessive facilities. Mordecai 
Ezekiel, economic adviser to the Secretary of Agriculture, has given us a 
rather comprehensive statement of the market reform view of the Adjust- 
ment Act. "One other serious problem of agriculture is that involved in the 
high cost of marketing and in the slackness and waste now present in many 
types of marketing activities. In the duplication in the distribution of fluid milk, 
in the wholesale and retail sale of meats, and many other places, there are 
glaring cases of excessive capacity and duplication of facilities which do not 
profit the individual selling agencies and which do add to the cost of marketing 
which farmers and consumers must share. . . . Some of our marketing agree- 
ments have made some improvement along the line of increasing the marketing 
efficiency through improved stability, increasing the use of proper grades and 
standards and correcting unfair and discriminatory practices." He adds that 
progress in this direction is at present "retarded by the fact that really increased 
marketing efficiency would mean . . . large numbers of men displaced to seek 
employment elsewhere. ... In this, as in many other phases of the program, 
the problems whose solution must be left to the future are not less important 
than those which we are grappling with today." Address before National 
Association of Marketing Officials, New York City, Nov. 15, 1934, AAA Press 
Release No. 973-35, pp. 15-16. See also footnote 13, p. 310. 

295 



296 MARKETING AGREEMENTS 

seemed possible and reasonable, thus securing a second 
source from which producers' net returns might be in- 
creased, some persons consistently have held the view that 
the marketing agreement and license powers should be 
utilized to accomplish a rather thoroughgoing program 
of market reform in which any and all abuses that have 
crept into the practice of trade agencies should be attacked 
and, if possible, eliminated, and new and higher stand- 
ards of commercial equity and market economy, as well as 
improvement in the technical quality or the wholesome- 
ness of the products handled, should be brought about. 

There has been a considerable degree of disagreement 
on this particular point among the administrative officials 
of the AAA, the Consumers' Counsel, the office of the 
General Counsel (prior to the reorganization of February 
1935), and certain officials of the Department of Agricul- 
ture not directly attached to the Adjustment Administra- 
tion. In the early days of marketing agreement experi- 
ence, there was a drive to secure the inclusion of pure food 
requirements and assertion of the right of the Secretary to 
examine books and records in such a broad way as to con- 
stitute "fishing expeditions" for the purpose of securing 
evidence for a general purge of commercial and industrial 
practice as related to agricultural commodities. This ac- 
tion was strongly resisted by various trade groups, notably 
tobacco manufacturers, meat packers, canners, and milk 
distributors. 

Something of a retreat from this position has taken place 
with the process of time. It is to be attributed in part to 
a changing interpretation of what is legally permissible 
under the act and in part to issues of practical expediency. 
The present administrative staff has learned in the hard 
school of experience the unwisdom of trying to fight on 
too many fronts at once. 



REGULATORY PROVISIONS 297 

It has recognized the enhancement of farmers' re- 
turns as the major and primary, if not the exclusive, pur- 
pose of the act and has been willing to let the sleeping 
dogs of commercial practice lie> as far as this is possible 
without jeopardizing the success of its major under- 
taking. Even with this limitation, however, there were 
four general types of regulatory control over market prac- 
tices to be found in the marketing agreements and hence 
in the licenses made standard practice for whole distribu- 
tor groups: 2 grading, standardization, and inspection; 
storage fees, processing rates, and marketing charges; 
"fair trade practices"; and reports, accounting, and access 
to books and records. 

GRADING, INSPECTION, AND CHECKING 

Slowly but persistently over a period of some decades 
a movement has been growing up under the United States 
Department of Agriculture and various state and munici- 
pal agencies and certain commodity exchanges toward the 
development of technically accurate and comparable 
standards for agricultural products and for an efficient in- 
spection service for putting these standards into operation 
for all products moving through the commercial markets. 
The work has reached its fullest development in the case 
of staple commodities dealt in on futures exchanges, not- 
ably grain and cotton; but by 1933 it had made very sub- 
stantial progress even among the perishables such as fruit 

2 This is to be differentiated from the controls set up in the several codes 
under the NRA in which the AAA has to a limited extent participated. The 
codes placed large emphasis on wage and labor provisions which were designed 
primarily for the protection of labor. They included also fair trade practice 
provisions which, though concerned primarily with equitable and profitable 
conditions for the trader, had some repercussions on the farmer through their 
influence on distributive charges or the determination of competitive practice. 
In fact, some of the trade practice provisions of the codes overlapped or dupli- 
cated provisions of marketing agreements and licenses. 



298 MARKETING AGREEMENTS 

and vegetables. Likewise the growth of co-operative 
marketing agencies had been accompanied by consider- 
able development of grading practices, and a similar stand- 
ardization had been brought about through certain private 
trade agencies such as canners' associations. Where such 
standards have already been made compulsory through 
legislation, their use in marketing agreements and licenses 
of course does nothing to change existing practice. But 
where they have come into vogue only through the volun- 
tary efforts of co-operatives or private distributors, the 
license, in so far as it is enforced, makes them effective for 
the whole commercial movement and thus removes the 
unfair competition which comes about through ambiguity 
as to the product being dealt in. 

In other cases, however, where difficulty had been 
encountered in the effort of standardization agencies to 
secure the acceptance of grading and inspection, the 
inclusion of a provision of this sort, though introduced 
primarily for the purpose of facilitating the administration 
of shipment control, has far-reaching effects upon the man- 
ner in which the commodity is handled. The general 
history of past standardization effort suggests that once 
such practices have been put in operation for a period of 
even a few years, it is likely that they will establish them- 
selves permanently. 

There is great variety as to the form of standardization 
provisions and the manner in which they are introduced 
into the agreements. In some cases they are simply in- 
corporated in the definition of the commodity (California 
asparagus, shade-grown tobacco, walnuts, cling peaches). 
In other cases, such as Florida strawberries and Southeast 
potatoes, the grading and inspection are incidental to other 
administrative provisions of the agreement, since they are 



REGULATORY PROVISIONS 299 

based on the withholding of specified grades from ship- 
ment. The provisions of the Florida agreement are: 

Section 1. Strawberries shall be packed and graded in accord- 
ance with the United States grades and standards, and no straw- 
berries shall be shipped which have not been so graded and packed. 
Each container shall bear the United States grade of its contents, 
or the brand or trademark representing such United States grade, 
if such brand or trademark, with the specifications thereof, has 
been registered with the control committee for at least ten days 
prior to its use. 

Sec. 2. Each shipment of strawberries from Florida in whatever 
quantity shall be inspected by and its conformity to said grades 
and standards certified by authorized representatives of the federal 
state inspection service: Provided, however, That such inspection 
and certification shall be required only on and after such date as 
the control committee may designate in each shipping season. 

The Southeastern watermelon agreement provides that 
the use of United States grades may be required by order 
of the control committee. This provision has been called 
into use during the current season. 

In some cases where government grades have not been 
developed, standardization under the control committee 
has been rather fully worked out in marketing agreements. 
The prune agreement provides that it shall be the duty 
of the control board to "define, establish, and 
promptly announce the specifications for grades of stand- 
ard and sub-standard prunes, and, subject to disapproval 
by the Secretary, fix and promptly announce for each 
year's crop the tolerances for off-grade prunes permissible 
in standard prunes." 3 The raisin agreement is essentially 
similar to the prune agreement. With respect to each crop 
the control board defines standard, sub-standard, and in- 
ferior raisins and announces such definitions. It grades 

3 The section on definitions covers not only "standard" and "sub-standard" 
prunes but also "off-grade" prunes and "culls." Art. VII, Sec. 12 (n). 



3 oo MARKETING AGREEMENTS 

allegedly sub-standard or inferior raisins, and determines 
therefor maximum differentials below minimum prices 
for standard. The control board selects qualified raisin 
graders. 

The Florida citrus marketing agreement contained sepa- 
rate sections requiring the use of United States grades and 
inspection, and the Texas agreement provides for inspec- 
tion under the Texas standardization law. Similar pro- 
visions became an important part of the peanut and South- 
ern rice agreements since lack of proper grading had been 
a source of serious abuse. The first Southern rice agree- 
ment provided : 

If and when the Secretary determines that compulsory federal- 
state grading is necessary to protect the interests of producers of 
rice, the millers hereby agree that upon notice by the Secretary, in 
such manner as he shall determine, they will thereafter purchase 
no rough rice which is not accompanied by a certificate issued by 
a federal-state grading office. 

Such federal grades became effective a few months later. 
Similarly, the Connecticut Valley shade-grown tobacco 
agreement provides that "after the Bureau of Agricul- 
tural Economics shall have adopted a schedule of standard 
grades for tobacco, all tobacco of the 1933 and subsequent 
crops sold by contracting handlers shall be graded in ac- 
cordance with such schedule of grades by an official in- 
spector." Federal grades accordingly became effective 
with the beginning of the 1933 crop movement. 

The California date shippers' agreement requires grad- 
ing of the product in accordance with an elaborate set of 
specifications attached to the agreement and also conform- 
ity to the pure food laws of the United States and Cali- 
fornia. Subsequently a schedule of package standards was 
adopted by the control committee pursuant to a provision 



REGULATORY PROVISIONS 301 

in the marketing agreement and this was approved by the 
Secretary of Agriculture as an amendment. Consumer 
standards were likewise contemplated in the rice agree- 
ments, which provided that if the Secretary of Agriculture 
should establish consumer standards the millers would 
abide by them "in the preparation of the contents and 
labeling of consumer packages." 

On the whole, it would appear that grading and stand- 
ardization provisions are receiving increased emphasis as 
the marketing agreement phase of the AAA work goes 
forward. Grading and inspection provisions have been 
included in all recent agreements and their basic import- 
ance in the two tomato agreements tentatively approved 
on March 11, 1935 was emphasized in the announcements 
of these agreements. 4 Similarly "the purchase of cream 
on a graded basis and a class and grade labelling of butter 
sold at retail were the underlying points in a quality im- 
provement program sought in a proposed butter market- 
ing agreement for the West Coast and Mountain states." 5 

Marketing agreements and licenses have also been 
availed of as a means of forwarding the work of standard- 
ization of packages and containers which has been under 
way for many years in the United States Bureau of Agri- 
cultural Economics and the Bureau of Markets which pre- 
ceded it. We have already noted the requirement in the 
Florida strawberry agreement for standard pack as well as 

4 "The tentatively approved agreement is intended to improve returns to 
growers by requiring all shipments to be graded according to the United States 
standards, and to be inspected and certified by the federal-state inspection service. 
The agreement also provides for the withholding of inferior grades and sizes 
when in the judgment of the control committee such action is necessary to 
improve returns to growers." AAA Press Release No. 1740-35. 

5 AAA Press Release No. 1771-35. This agreement was not brought 
to the effective stage (see p. 197), but the 1935 session of the state legislature 
of California sets up four standard grades of butter and prohibits the sale for 
table use of any butter scoring 88 points or below. 



3 02 MARKETING AGREEMENTS 

grade. Amendments to the western Washington vege- 
table agreement, submitted in March 1935, contained a 
provision covering standardization of containers, as fol- 
lows: 

All shipments of fresh lettuce, peas, and/or cauliflower shall be 
packed only in containers which meet the specifications prescribed 
for the respective crops by the control committee, subject to the 
prior approval of the Secretary: Provided, that in case standards 
have been or shall be promulgated for any of such containers 
under the Standard Container Act of 1928, the specifications pre- 
scribed by the control committee shall conform thereto. 

Such efforts to standardize containers are aimed pri- 
marily at the protection of the consumer, but they also 
benefit reputable distributors and producers by freeing 
them of the uncertainty and added expense involved in the 
use of odd-sized or peculiarly shaped packages, many, if 
not all, of which are designed to mislead the buyer. Clearly 
intended to protect the producers against sharp practices 
on the buyers' part was a standard measure provision in- 
cluded in the Southern rice marketing agreement (now 
cancelled). This was designed to eliminate abuses grow- 
ing out of the system of buying on a lump-sum basis. The 
clause provided that : "All rough rice shall be purchased in 
units of barrels or bushels, and no miller shall purchase rice 
round, or by sack, bag, stack, or lump sum." 6 

A similar development in the field of fluid milk mar- 
keting has been designed to protect the producer against 
short weights or dishonest tests on the part of distributors. 
In the older and more highly organized markets, hit-or- 
miss methods had largely passed away in response to the 

6 In the article of the agreement giving definitions, "barrel" is defined as 
162 pounds of rough rice; "bushel" as 45 pounds. "The terms 'sack or bag' 
mean every container of unknown, irregular, or random weight, 'stack or lump 
sum' mean without respect to quantity, quality, or condition, and 'round' means 
purchased without respect to grade." 



REGULATORY PROVISIONS 303 

efforts of producers' organizations and municipal health 
departments. As a result, milk was handled on a basis of 
strictly defined sanitary standards and known butterfat 
content. The accuracy and honesty of weighing had been 
safeguarded to some extent by the regulatory activities of 
municipal or state sealers of weights and measures, and the 
honesty of both weights and butterfat tests assured by 
having them rechecked by representatives of the co-opera- 
tive associations. In some of the smaller markets where 
these developments had been absent or tardy, the wide- 
spread use of licenses for milk distributors has effected a 
considerable reform in market practice, and even in larger 
cities the use of the license made these safeguards apply 
to all handlers of milk, thus tending to eliminate the goug- 
ing of producers and the unfair competition sometimes 
practiced by the less reputable distributors. 7 

Besides the checking of weights and tests, there is also 
the problem of verifying the dealers' reports as to the ac- 
tual disposition of products in accordance with the class- 
price plan of payment discussed in Chapter X. Thus far 
no specific control devices which would cover this item 
have been incorporated in licenses. Sworn reports are 
called for and, as a matter of administrative precaution, 
these have sometimes been supplemented by a "spotter" 
at the distributor's plant. If the classification plan is to be 
made fully effective, however, it may prove that checking 
of actual deliveries will be quite as important as checking 

7 In this connection, mention may also be made of the provision contained 
in the proposed Texas-Mississippi tomato marketing agreement governing the 
way in which shippers were to conduct their buying operations and account to 
the producer. The section read: "Each contracting shipper agrees that in buying 
tomatoes from any producer or in accounting to any producer for tomatoes 
handled in any manner for the producer's account, that such buying or ac- 
counting shall be on a basis of (i) the amount of tomatoes actually packed, or 
(2) an inspection by, or under the supervision of, a representative of the fed- 
eral-state inspection service." 



3 o 4 MARKETING AGREEMENTS 

of weights and tests and a matter properly to be covered in 
the Secretary's order. 

SERVICE CHARGES 

Many marketing agreements include provisions regu- 
lating service charges. 8 Such regulations fall into two 
general classes according to the purpose for which they 
are included. First are those limiting charges made by 
distributors or processors for the purpose of preventing 
the enhancement of such charges and thus depriving the 
producer in part at least of the benefit of such price ad- 
vances as may be brought about. The commonest form of 
this provision is that which provides that the grower shall 
not be charged for any service a price in excess of the 
average price charged by the shipper for the same service 
during the previous three shipping seasons unless permitted 
to charge a higher rate by the control committee. 9 Such 
modification must be based upon a showing on the part 
of the shipper that his labor or material costs have been 
increased or that additional service is being given with 
"commensurate benefit to the growers." In several recent 
agreements co-operative associations operating on a strictly 
non-profit basis are excepted from this provision. In the 
case of three California agreements (Tokay grapes, Grav- 
enstein apples, and deciduous tree fruits) the provision 
relates to handling the product on consignment and the 
maximum charge is placed at 7 per cent of the gross 

8 "In connection with fixed resale prices or their omission, 'service charges' 
such as commissions and handling, storage, and financing fees, will be care- 
fully scrutinized." Statement of General Policies Governing Marketing Agree- 
ments, AAA, Sec. II (7), Sept. 20, 1933. 

9 In the 1934 Florida citrus agreement, the basis of the charge was changed 
to the average price charged by the shipper during the previous shipping season 
or, if he was not then engaged in business, "the average price customarily 
charged by shippers in the same locality." 



HI 



REGULATORY PROVISIONS 305 

delivered price of 10 per cent of the net price f. o. b. Cali- 
fornia, 10 the rate common in the industry. 

The Northwest deciduous tree fruit agreement accepts 
in principle the propriety of regulating charges which 
handlers can make to growers as commissions for services, 
but refrains from establishing such rates because of the 
"different conditions and practices in the different dis- 
tricts with respect to the various fruits." However, it pro- 
vides that: 

the control committee shall make the necessary study and collect 
the necessary data at its earliest convenience to prepare and submit 
to the Secretary for approval a schedule of maximum charges for 
services of every kind rendered by the handlers incident to the 
marketing of fruit, and the parties agree that such schedule, when 
approved by the Secretary, shall become a part of this agreement. 
Pending the approval of such a schedule of maximum charges, no 
handler shall charge any grower as a commission, or otherwise, for 
his services in completing a sale of fruit in excess of the prevailing 
charges for similar services in the district involved as evidenced by 
existing practices. 

As for brokerage charges to be paid at terminals: 

The commodity committees shall determine and publish sched- 
ules of maximum uniform charges which can be made or paid by 
handlers for brokerage services rendered at terminal points, and 
charges for any other brokerage service, including services ren- 
dered in connection with sales made outside of the continent of 
North America. 

The second purpose for which regulation of service 
charges is used is to prevent the evasion of minimum price 
schedules through low credit rates, the giving of free or 
cut-rate storage, or other extra services gratuitously. 
Several agreements have prohibitions against such prac- 

10 Or in the case of Gravenstein apples, the alternative of 10 cents per box. 
The grape agreement provides also that "on all sales made outside the continent 
of North America charges for foreign brokerage may be deducted in addition." 



3 o6 MARKETING AGREEMENTS 

tices. For instance, the Northwest deciduous tree fruit 
agreement provides: 

No handler shall furnish storage services of any kind to buyers 
for less than the minimum rates established for such services, and 
any reports of sales made on a storage-paid basis shall indicate the 
amount of the storage charge included in the price. 11 

The peanut agreement had a detailed section covering 
charges to be made for storage which was designed to 
put all parties on a basis of competitive equality in the 
market. We have already noted, however, that in the 
summer of 1934 the rates actually charged to the farmer 
were so stepped up as to constitute a substantial reduction 
in the minimum prices which he was supposed to receive 
under the agreement. 

There are two important classes of service charges in 
the handling of milk, namely transportation charges and 
plant charges at receiving stations. These are not, how- 
ever, simple service charges paid directly by the producer 
to the distributor; like other of the economic relationships 
in the fluid milk market they have undergone a process 
of conventionalization. For example, distributors may 
settle for the various producers' milk according to a system 
of differentials based upon geographic zoning. As a re- 
sult a given dairyman may bear a transportation charge 
which corresponds only indirectly with the transportation 
service actually rendered in bringing his milk to market. 
Some distributors may collect milk in cans by truck and 
others may transport it in bulk in motorized tanks. Cost 
of such service may vary considerably and yet the charges 
be the same. Similarly, different parcels of milk may re- 
ceive quite different handling at a single plant or be 

11 "The control committee shall fix schedules of maximum and minimum 
charges for packing and storage services and such charges shall be on a uniform 
basis intradistrict and as nearly as possible interdistrict." Art. XI, Sec. 2. 



REGULATORY PROVISIONS • 307 

handled at different plants, some large and some small, 
some better equipped and some not so well equipped, and 
yet all bear uniform plant handling charges or charges 
which, though they differ, do not differ in proportion to 
either the cost or the value of the service rendered. Some- 
times there are also standardized charges for use of con- 
tainers, for icing, and the like. 

In general, the milk marketing agreements and licenses 
thus far have accepted prevailing schedules for such 
charges with little or no modification. To some extent, 
the system of payment provided under the license has 
modified the service charges of dealers whose operations 
previously were not covered by any collective bargaining 
arrangement. Such dealers might offer producers prices 
nominally higher than the prevailing rate but offset such 
differentials by higher trucking rates or plant charges. 
Since the milk of a given market is often handled in a 
variety of ways in which all the services are sometimes per- 
formed by a distributor and at other times divided among 
distributor, co-operative or private country plant, and co- 
operative, private, or producer transportation agency, the 
changing of service charges tends to modify the competi- 
tive relationship of the several agencies. Experimental 
studies have been made by the Adjustment Administra- 
tion at a few points to test the reasonableness of present 
charges and whether they are equitable as among the 
various parties. It seems likely that if the licensing system 
should be put upon a more permanent basis, the regula- 
tion of such charges may be actively undertaken. 

FAIR TRADE PRACTICES 

Besides provisions regulating service charges to produc- 
ers, many agreements have provisions covering fair trade 



3 o8 MARKETING AGREEMENTS 

practices. 12 They are an accompaniment of provisions gov- 
erning the resale price of the product. Although they 
deal with matters that concern the distributor or processor 
in his relations with the consumer or other purchaser of 
his product, they are not without significance to the 
grower. 

Fair trade practice provisions in the various marketing 
agreements differ considerably in form. They range from 
the very simple type found in the milk marketing agree- 
ments to the elaborate provisions used in canning crop 
agreements. The milk marketing agreements banned as 
unfair : 

. . . any method or device whereby fluid milk is sold or offered for 
sale at a price less than stated in the agreement, whether by any 
discount, rebate, free service, merchandise, advertising allowance, 
credit for fluid milk returned, loans or credit outside the usual 
course of business, or other valuable considerations, or combined 
price for such milk, together with another commodity sold or 
offered for sale (whether separately or otherwise), whereby a 
subsidy is given for either business or information or assistance in 
procuring business. 

The trade practice section in the Florida and Texas citrus 
agreements prohibits inducing breach of contract, making 
misleading statements, the use of oral contracts, or the pay- 
ment of brokerage to buyers or any brokerage above the 
established rate. The first cling peach agreement con- 
tained an article more than two pages in length covering 
general trade practices with sections relating to rebates and 
concessions, open prices, classification of customers, terms 
of sale, brokerage arrangements, label and shipping case 
allowances, "swells" allowances, standards of grades, price 

12 This term as used in marketing agreements is much more narrowly re- 
stricted than it was in NRA codes or in general usage. For example, many 
of the matters which we have dealt with in the section on "service charges" 
are often treated as part of fair trade practice provisions. 



REGULATORY PROVISIONS 309 

guaranty, future contracts, deceptive practices, injury to 
competitors, sanitation inspection, and inspection of the 
finished product. The second cling peach agreement aban- 
doned the naming of resale prices and these provisions 
were dropped, but a somewhat similar trade practice sec- 
tion is to be found in the ripe olive canning agreement. 
Likewise the Southern rice-milling agreement laid down 
trade practices rather minutely in two articles entitled 
"terms of sale" and "brokerage." 

Since the naming of resale prices is now contrary to 
AAA policy and excluded from the provisions of the 
amended act, fair trade practice provisions are of minor 
and declining importance. So far as many of the com- 
modities covered by marketing agreements and orders are 
concerned, these matters are already in large part covered 
by the Perishable Agricultural Commodities Act and there 
would seem to be no good reason why this statute could 
not be broadened to cover all agricultural commodities 
moving in interstate commerce. 

SECURING REPORTS AND ACCESS TO BOOKS 

The most controversial of all provisions affecting mar- 
keting practices are those relative to the making of reports 
and the granting of access to the books and records of dis- 
tributors or processors. We pointed out in Chapter XI 
that as a mere administrative matter every agreement and 
license must contain some requirement of this kind if 
regulation is involved. It is impossible to know whether 
the various provisions are being complied with or to mea- 
sure the extent to which they are effectuating the purposes 
of the act unless the Adjustment Administration has a 
record of transactions before it. 

Opinion has differed sharply, however, as to how full 



3 io MARKETING AGREEMENTS 

a record is necessary for this purpose and how wide was the 
scope of authority conferred by Congress on the Secretary 
of Agriculture to compel these concerns to reveal the de- 
tails of their operations. To a considerable extent, the 
matter hinges upon the interpretation of the act as merely 
a measure for the enhancement of prices to producers or 
as a more ambitious attempt to secure economic reform of 
the distributive agencies and of the practices of processors 
of agricultural products. As indicated in the introduc- 
tory section of this book, the larger view was held by a 
considerable and influential group in the early days of the 
Adjustment Administration. Besides those who hoped to 
use licenses as a means of reforming existing practices of 
the trades, others viewed it as a necessary effort to a safe- 
guard against the abuse of powers of further consolidation 
conferred in the Adjustment Act. One of the spokesmen 
of this view has recently expressed it as follows: 

In essence our position was that the forces of competition should 
be encouraged and kept open wherever possible in order to hold 
distributors and processors' margins within reason and thus pro- 
tect the consumer. Wherever monopoly privileges were granted 
by agreements, contracts and licenses — in virtually every case — we 
felt the AAA should exercise strict supervision over the processing 
and distributing industries involved and should have complete 
access to all their books and records. Only in this way in our 
opinion would the farmers and consumers have a chance of getting 
a fair deal at the hands of the giant food processing and distribut- 
ing industries. 13 

As a practical matter, however, any attempt to have the 
Adjustment Administration "exercise strict supervision of 
the processing and distributive industries involved . . . and 

13 Gardner Jackson, formerly on the staff of the Consumers' Counsel of the 
AAA, Washington Star, Mar. 3, 1935. It will be noted that this theory of the 
regulatory force of free competition is not the same as regulation under govern- 
ment discretion advocated by Mr. Ezekiel. See note on p. 295. 



REGULATORY PROVISIONS 311 

have complete access to all their books and records" would 
imply a regulatory task of quite impossible dimensions. 
It seems clearly to lie outside the intention of Congress 
in passing the act and is certainly outside the administra- 
tive policy of the present Administrator. The effort has 
been made in all agreements to include reasonable but 
adequate provisions covering the making of reports which 
will keep the Adjustment Administration properly in- 
formed as to operative results and will concede to the 
Secretary the right to such access to books and records as 
is necessary to detect and prevent evasion of the terms of 
the agreement. Where signatories have not been able to 
agree on a statement which seems adequate to the admin- 
istrative officers, the practice has been to go as far as pos- 
sible in the voluntary agreement and then to incorporate 
the full statement in the license. For example, the raisin 
marketing agreement contained a section obligating the 
contracting packers to furnish the Secretary with reports 
which would enable him to ascertain the extent to which 
the declared policy of the act and the purposes of the 
agreement were being effectuated, followed by a provision 
that: 

The contracting packers also severally agree that, for the same 
purpose, and/or to enable the Secretary to verify the information 
furnished him on said forms of reports, their books and records 
and those of their affiliates and subsidiaries (relating to matters 
concerning this agreement) shall during the usual hours of business 
be subject to the examination of the Secretary. 

The raisin license omitted the parenthetical phrase "relat- 
ing to matters concerning this agreement" and read "all 
the books and records . . . shall ... be subject to the exami- 
nation of the Secretary. The Secretary's determination as 
to the necessity of and the justification for any such exami- 
nation shall be final and conclusive." 



3 i2 MARKETING AGREEMENTS 

The fact that the present Adjustment Administration 
officials take a restricted rather than an expansive view of 
this matter is indicated by the phraseology of the amend- 
ment which they have proposed (see page 259) to bring 
this matter out of the realm of mere administrative policy 
and within the specific provisions of the act. They stipu- 
lated that the requiring of reports and the granting of 
access to "such books, papers, records, copies of income- 
tax reports, accounts, correspondence, contracts, docu- 
ments, or memoranda" as he deems relevant is conditioned 
upon the Secretary's need "to ascertain and determine the 
extent to which such agreement or order has been carried 
out or has effectuated the declared policy of this title . . . 
and to determine whether or not there has been any abuse 
of the privilege of exemption from the anti-trust laws." 
Thus the power is deprived of any direct connection with 
market reform plans. 

It should not be assumed, however, that this phase of 
the market adjustment undertaking is without any signifi- 
cance with reference to the evolution of our marketing 
institutions and practices. The fuller knowledge of actual 
price and cost-of-marketing conditions and forces gained 
through such reports and investigations would almost 
certainly influence the stipulations included in subsequent 
marketing agreements or Secretary's orders. It might 
likewise lead to further measures designed to bring about 
uniform accounting systems such as have been adopted by 
the Interstate Commerce Commission, or to recommenda- 
tions for specific legislation designed to improve some of 
the conditions which in the light of this fuller knowledge 
seem clearly to be unsatisfactory. 14 

14 Such an outcome would be analogous to that under the Grain Futures 
Administration. The Grain Futures Act did not set up a scheme of regulation 
of the grain market but required rather comprehensive reporting of the actual 



REGULATORY PROVISIONS 313 

RECONSTRUCTION OF MARKET MECHANISMS 

It seems clear that the Adjustment Act, even in its mar- 
keting agreement and licensing sections, was designed as 
a measure for enhancing and stabilizing agricultural in- 
come at the level defined as pre-war "parity" and not 
as a means of reforming market practices. The latter 
task has been undertaken under a considerable num- 
ber of federal statutes covering standard grades and con- 
tainers, service charges, reporting of transactions, and 
regulation of commercial practices. Several of these oper- 
ate through the licensing power and at least two of them 
(the Packers and Stockyards Control Act and the Perish- 
able Agricultural Commodities Act) constitute quite com- 
prehensive regulatory measures. With others, notably the 
standardization acts as related to perishables, it is doubt- 
ful whether progress will be most rapidly promoted by 
making market practices compulsory under orders rather 
than keeping them on a voluntary basis. Probably reform 
of specific practices will be most comprehensively and flex- 
ibly developed by continuation of the evolution of these 
separate lines of attack rather than having them super- 
seded by an inclusive license or "Secretary's order" statute. 
At the same time, attempts to carry out any marketing 
plan frequently reveal situations in which the incidental 
use of market practice regulations similar to and some- 
times based upon these other statutes has a considerable 
supplementary value. As already pointed out in this chap- 
ter, numerous agreements and licenses have tended to ex- 
pand and accelerate the use of grading, inspection, and 
other similar measures for the improvement of handlers' 
practices. 

course of trading as a means of ascertaining what regulatory measures, if any, 
might be required. 



3 i4 MARKETING AGREEMENTS 

In a somewhat different sense, however, marketing 
agreements and licenses seem to have for certain com- 
modities the possibility of constituting rather sweeping 
agencies of "market reform," as some people use the term. 
It can perhaps better be described as market reorganiza- 
tion. Instead of merely prescribing the detailed manner 
in which old functions should be performed and stand- 
ardizing and policing these market practices, the new 
marketing plan for Connecticut Valley shade-grown to- 
bacco and for fluid milk in certain markets where an 
equalization pool or base-rating plan was introduced 
results in the virtual substitution of a new marketing 
method. The introduction of an open-price system and 
the segregation of reserve tonnages to be administered by 
representatives of the whole industry (walnuts, raisins, and 
prunes) constitute distinct modifications of traditional 
marketing methods. 

The instances in which marketing methods or organi- 
zation have been revamped under agreements and licenses 
thus far have not been numerous or extensive. But it 
would seem that if the marketing provisions of the Ad- 
justment Act are kept in force or should in time be given 
permanent form, the establishment of an agency within 
the various commodity groups devoted to the problem of 
studying marketing problems on a group base would over 
a period of years result in innovations in market structure 
and functioning which would be considerable in extent. 
One's appraisal of the value of such changes will depend 
upon his analysis of their net effect upon price relation- 
ships and of the goals which he considers desirable in this 
regard. These are issues which will be discussed in the 
two remaining chapters of this book and, somewhat more 
broadly, in the general volume which is to follow. 



CHAPTER XIV 

PRICE OBJECTIVES AND STRATEGY 

We turn now to the prime objective toward which the 
whole market adjustment effort of the AAA has been 
directed, namely, the attainment of parity prices for pro- 
ducers. The immediate objective of the marketing agree- 
ment provisions of the Adjustment Act, like that of the 
production control program, has ordinarily been stated in 
terms of unit price. 1 But, as a practical operative matter, 
neither growers nor administrators are satisfied with the 
attainment of higher market quotations at the sacrifice of 
volume of sales to an extent which results in failure to 
enhance the grower's total net income. In a word, the 
parties to all such agreements and licenses are operating 
under the theory of monopoly price, applied to the supply 
within their administration. 2 The aim of the monopoly 
is to set the unit cost to buyers not necessarily at the high- 
est possible figure but at the figure which when multiplied 
by the number of units which can be sold at that price will 
result in the largest total net return. In several instances, 
this means not a single price but a differential system of 
two or more prices which together will exploit all avail- 

1 Under the statute, the standard of pre-war purchasing power parity is set 
up as the objective of marketing agreements and licenses as well as of the 
processing tax and benefit payment portions of the act. In the operation of 
the former, however, less is heard about parity prices and, because of the nature 
of the business and price relations involved, it would be no easy matter to 
compute such parity price with any degree of certainty. Thus the general 
crops chapter in the AAA report for 1934 says: "Improvement of the income 
of producers is the primary objective sought through marketing agreements 
and accompanying licenses." Agricultural Adjustment in 1934, AAA, p. 202. 

2 It differs from a complete long-lasting monopoly situation, however, in its 
lack of control over the productive process. 

315 



3 i6 MARKETING AGREEMENTS 

able market demands to the maximum advantage of the 
seller. 3 

COLLECTIVE PRICE MAKING 

The situation brought about by the marketing agree- 
ments, supplemented in the past by licenses and in the 
future by "orders," may be described as "controlled mar- 
keting" or as collective price making. It has many points 
of similarity with the cartel movement in industry. Its 
general price theory is built upon the more aggressive 
elements of the co-operative marketing movement as that 
institution had developed over a considerable period of 
time prior to the passage of the Agricultural Adjustment 
Act. 

As large federated or centralized co-operatives grew up, 
they tended to place their emphasis strongly on the de- 
sirability of a single co-ordinated control of the distribu- 
tion of a given commodity so that the total supply of the 
whole producer group could be administered or manipu- 
lated in the market in such a way as to secure the maxi- 
mum return which seemed feasible in view of the condi- 
tions of demand. This meant that supplies should be 
equalized (i) between the various markets so as to prevent 
either gluts or scarcities; 4 and (2) over such a range of 

3 Such advantage may be considered either from the short-run point of 
view in terms of highest price at a given moment or during a single season, or 
from the point of view of larger returns over a period of years. 

Likewise the "seller" in question may be either the producer of the agricul- 
tural raw material or the processor who puts it in final form for the consumer 
or retail trade. Ordinarily maximum net return to the processor will be 
secured from the somewhat more liberal supplying of the market than that 
which will redound to the maximum advantage of the grower. This clash 
between two more or less divergent measures of what is desirable is discussed 
with reference to celery on p. 331. 

4 It is argued that scarcities, by forcing prices to extreme heights, drive 
buyers to competing commodities from which they can be won back only with 
difficulty, if at all. 



PRICE OBJECTIVES AND STRATEGY 317 

time as seemed practicable in view of the perishability of 
the commodity and of the storage, financing, or other costs 
of holding. The co-operatives borrowed the phrase "col- 
lective bargaining" from the organized labor movement 
to describe their operations. In point of fact, however, 
this phrase was accurately descriptive of only a very few 
phases of co-operative marketing activity. Collective bar- 
gaining for a price or prices was important in the field of 
fluid milk marketing and was used also to a minor extent 
in connection with sugar beets, canning crops, and the like. 
In the main, however, the practice which the co-operatives 
sought to perfect was not that of collective bargaining for 
a price but of collective control of the market movement 
of the commodity in order that certain price objectives 
might be reached or at least approached. Though the two 
procedures differ, the goal is the same. 

For the attainment of any such objective, it was felt to 
be necessary that the whole group act as a unit, and the 
producer who refused to participate in this centralized 
strategy of the market was branded as a "scab." He was 
regarded as seeking to derive immediate personal gain 
at the expense of the welfare of his group, which might 
even mean at the expense of his own long-run advantage. 
Indeed, he might be merely asserting a right to the satis- 
faction of individual freedom with little or no regard to its 
effect upon his own fortunes or those of his fellows. The 
advocates of collective action sought to attain a higher 
general level of prices, which would be enjoyed by all 
members of the group, sometimes on a flat or averaged 
basis and sometimes classified according to the quality or 
other differential values which the individual's product 
commanded in the market. But the co-operatives insisted 
that no individual producer ought to be permitted, while 



318 MARKETING AGREEMENTS 

the group was seeking to bring about a certain adjustment 
between supply and demand, to interfere with the attain- 
ment of this objective by the unregulated offering of his 
product in the market. 

Since no scheme of voluntary co-operation in marketing 
ever succeeds in welding all individual producers into an 
integrated group, there has been for many years a wistful 
turning of co-operative thought toward some practicable 
device for bringing about "compulsory" co-operation. 
While the term is essentially a contradiction, the idea is 
obvious; that is, controlled marketing on a comprehensive 
scale. This might mean co-extensive with the boundaries 
of the given branch of agricultural production, or some- 
times the bounds of a particular area within which its 
production was carried on. Interested attention was given 
by American farmers to experiments along this line which 
have been conducted in other countries, and the inclusion 
of the licensing provision in the Agricultural Adjustment 
Act was hailed as at last implementing such an undertak- 
ing on the part of American producers. They interpreted 
this section to mean that when a substantial majority of 
the shippers of a given commodity (commonly producers 
of two-thirds to four-fifths of the acreage or tonnage) 
were ready to agree on a scheme of managed distribution 
in the interest of collective price making, the non-adher- 
ing minority should by license be constrained to abide 
by and participate in this collective plan. 

Beside the move toward "horizontal" integration which 
sought to embrace all of the producer group within a 
single organization, there was also a drive toward "verti- 
cal" integration under the various clearing-house plans 
(see pages 133, 187) which sought to get a unity of action 
between producers and the distributors and processors of 



PRICE OBJECTIVES AND STRATEGY 319 

their product. 5 Efforts along this line had made com- 
paratively little progress on a co-operative basis, but this 
phase of the integration movement occupied a command- 
ing place in the scheme of market adjustment by agree- 
ment and license. 6 

If we are to understand the economic philosophy which 
has grown up in connection with these moves toward 
controlled marketing and collective price making, we 
must remember that we are dealing not with market 
prices of staples sold on organized exchanges but with a 
particular group of agricultural commodities of a perish- 
able or semi-perishable character, none of which fall in 
the class of consumers' necessities, but all of which range 
from luxuries to those whose use, though to a considerable 
extent conventional, is likewise subject to great modifica- 
tion as to time or total quantity. Consumption of fresh 
milk and (still more) cream may be greatly reduced or 
even, by some families, entirely displaced by substitution 
of evaporated, condensed, or dried milk. Distinctive 
marketing strategies have been evolved for dealing with 

5 In varying degrees, the co-operatives of course were processors and dis- 
tributors of their own product. The clearing-house movement had in part 
been an attempt to complete control of the commodity by getting a working 
arrangement with handlers of that part of the product whose producers would 
not affiliate with the co-operative. In part, however, it had been an attempt 
to include processors and distributors whose operations came subsequent to 
those of producers who were co-operatively organized. 

6 Under the recent amendments, it is made possible for the Secretary of 
Agriculture (with the approval of the President) to resort to "orders" to control 
all shippers or processors for the effectuation of a collective marketing plan 
which has the endorsement of at least two-thirds of the producers, even though 
the handlers themselves have no desire for a collective marketing program. 
This would give the collective price-making effort some of the outstanding char- 
acteristics of a comprehensive producer co-operative enterprise although the 
marketing functions continued to be performed by private individuals, partner- 
ships, or corporations, along with such co-operatives as were already engaged 
in the business rather than exclusively through co-operative associations set up 
by producers. 



3 2o MARKETING AGREEMENTS 

this situation. Before discussing the relation of the AAA 
to these marketing methods, we will note certain distinc- 
tive features of the market in which horticultural prices 
are made. 

All vegetables, fruits, and nuts occupy a highly competi- 
tive position in the food market. It has become a fixed 
article of commercial faith among sellers of these com- 
modities that if the market is at any time allowed to be- 
come congested so that prices become unsettled, this re- 
sults in a loss of dealer interest from which it will take 
weeks to recover, if, in fact, recovery can be effected at all 
within the course of the marketing season. Equally 
strong is the belief born of experience that once a low price 
basis is established as a result of heavy shipment, con- 
sumers will "strike" against all attempts to establish higher 
prices later in the season. The strategy of fruit and vege- 
table marketing thus lays great stress on keeping key 
markets from becoming temporarily depressed by exces- 
sive receipts and upon restraining shipments at times of 
accelerated ripening or when markets strike "air pockets" 
as a result of curtailed demand because of unfavorable 
weather, holidays, or similar causes. 

It is pointed out that the city wholesaler or jobber in 
the distributive market ordinarily has many rival fruits 
and vegetables claiming his interest at the same time. He 
is not deeply concerned in difference in absolute prices, 
even of a magnitude which measures the difference be- 
tween prosperity and insolvency to the producer. 7 But he 

7 "In a particular instance when a carload of pears brought $2.77 per box 
at the New York fruit auction, consumers were paying at the rate of about 
25 cents for 6 or 7 pears, or about $5.00 for the box which netted the grower 
94 cents for the unpacked fruit. If the retailer had given one more pear for 
each 25-cent sale, he would have reduced prices to consumers about 13 per 
cent. If passed on toward the producer, this reduction would have lowered 
the auction price about 23 per cent, and the producers' returns 69 per cent. 



PRICE OBJECTIVES AND STRATEGY 321 

is, in making his forward commitments, concerned to 
select those lines in which he has assurance that some 
reasonably definite rate of supply will be known in ad- 
vance and observed by suppliers. 8 This does not at all 
imply the bringing about of stringency, but it does imply 
the pegging of a minimum level at which prices will be 
supported through the withholding of supplies. 

Besides certainty as to quantity, this type of market 
organization is aimed also at the attainment of certainty 
as to quality. If early shipments of fruit prove to be im- 
mature, if vegetables present a fair exterior but prove to 
have internal decay, insect damage, or disease, the trades 
and the consumers promptly turn away from this product, 
and returns to the growers as a whole suffer out of all pro- 
portion to the temporary gain reaped by the shipper of 
off-quality goods. 

Hence, for the regulation of both the rate of movement 
and the quality of the product, the first concern of any 
scheme of marketing in the interest of the group as a 
whole is to secure one centralized control over all com- 
mercial movement of the product. Such controls consti- 
tute the core of the marketing agreements and licenses 
discussed in earlier chapters of this book. 

If, however, at 94 cents a box a producer was making a gross of $6,000 with 
a net of $4,000 the above reduction of 13 per cent to consumers would thus 
have wiped out more than the growers' entire net return." H. E. Erdman, 
Some Aspects of the Agricultural Program of the Federal Government, paper 
read before Pacific Coast Economic Association, Los Angeles, December 1934. 
8 There has not been sufficient scientific investigation of this and other 
marketing theories expressed here from the point of view of the marketing 
agencies to establish their validity, but empirical evidence has firmly planted 
them in the minds of many "practical" marketing men and government and 
academic specialists in marketing. It would appear that if efforts to use the 
present AAA devices for controlled marketing are continued, they will be 
accompanied by researches which will go far toward proving or disproving 
them. 



322 MARKETING AGREEMENTS 

TYPES OF SUPPLY CONTROL 

From a recapitulation of the distributive procedures 
which have been discussed in preceding chapters, it ap- 
pears that these controls fall under five heads, as follows: 

i. Exclusion of inferior grades or sizes from shipment. 

2. Temporary embargoes on shipment. 

3. Restriction of supplies in specified auction markets. 

4. Curtailment of shipments during specified periods, 
generally from week to week. 

5. Limitation of the total supply whose shipment or 
sale will be permitted during the whole marketing season. 

The first of these methods of limiting shipments looks 
very simple at first glance. In its practical applications, 
however, it develops complications and subtleties of price 
determination which demand the most careful consid- 
eration. It is an old and somewhat overworked maxim 
among fruit and vegetable producers that a "quality prod- 
uct will always command a good price." As a corollary 
to this proposition, these interests generally argue that it 
is the presence of inferior grades and small (and some- 
times extra large) sizes of the commodity which drag 
down the prices of the superior part of the product. It is 
of course obvious that those classifications of products for 
which the market has a preference will command a pre- 
mium price. It is probably also true that, if off-grades 
are placed on the market in more than ordinary ratio, they 
will have a tendency to lower prices of these lower grades 
so rapidly that even the price of qualities that appeal to 
the more well-to-do and discriminating class of buyers 
may be to some extent depressed. If the price appeal of 
the lower grades becomes sufficiently marked, some buy- 
ers may shift their demand from standard to sub-standard 
grades and the price differential between the two may 



PRICE OBJECTIVES AND STRATEGY 323 

not widen as fast as the price basis of the inferior grades is 
lowered; the whole price structure may be lowered. 

It is going too far, however, to assume that the most 
profitable way of meeting this situation is to place supply 
limitations exclusively on the low grades. It must be re- 
membered that even within a single commodity there may 
be practically non-competitive classes of demand. If there 
exists a larger total supply than can be sold at prices which 
will return marketing and harvesting charges (or what- 
ever formula of "necessary price" the producers may set 
up), it is quite probable that for commodities where the 
second or third grade is palatable and wholesome the 
maximum returns will be secured by making some 
though not necessarily proportional withholding of the 
product from all grades. 

For simplicity, let us assume a commodity which falls 
into three grades, A, B, and C, of which 30, 40, and 30 per 
cent respectively will make the specified grades. We as- 
sume further that producers estimate that approximately 
one-third of the total product cannot be shipped at a re- 
munerative price. What might appear to be the obvious 
method of market adjustment in this situation would be 
to withhold the C-grade product entirely. Let us say, for 
the sake of convenient labels, that A-grade fruit is bought 
by the rich, B-grade by those in moderate circumstances, 
and C-grade by the poor. This type of limitation would 
mean that the distributive machinery would be asked to 
dispose of a larger volume among the rich and well-to-do 
than they are accustomed to take, whereas no compara- 
tively low-priced product would be available to the poor, 
whose purchasing power is so limited that they must buy 
on a low-price basis or not at all. 

It seems impossible to escape the conclusion that in this 



3 2 4 MARKETING AGREEMENTS 

situation the price of A-grade fruit would have to be low- 
ered to a point where some of it would be absorbed by the 
more affluent of the B-grade buyers and that of B-grade 
fruit lowered to a point where some of it would be ab- 
sorbed by C-grade buyers. If so, there might be doubt 
whether the total returns on all fruit shipped would be 
as great as those which could be secured by withholding 
part of both the A-grade and B-grade fruit, and shipping 
as much of the C-grade fruit as could be disposed of 
without bringing its price too near the level which would 
merely pay out-of-pocket costs to the producer. Such a 
policy tends to retain the percentage of all classes of con- 
sumers and possibly even extend it somewhat among buy- 
ers of moderate means. Furthermore, it builds good-will 
by the offering of food "bargains" rather than limiting 
market appeal to the more favorably situated buyers and 
possibly engendering resentment even among them. 

Of course this is a type of question which cannot be 
answered in advance by any set formula. Our over- 
simplified example, however, shows the limitations of a 
curtailment program based exclusively on withholding the 
less attractive grades of the product. On the other hand 
one prime object of marketing agreements is to keep off 
the market all shipments which would not pay handling 
costs. 9 This naturally leads to the exclusion chiefly of 
low-quality product. 

Besides the question of what price results will follow 
from putting the limitation in shipments exclusively on 
the low grades, there is the question of what effect this 
will have upon the fortunes of individual producers and 

9 A study made by the General Crops Section of the AAA covering 27,000 
boxes of Florida grapefruit sold on the Chicago auction market during the 
1 934-35 season showed 31 per cent of them selling for less than the cash 
outlay for harvesting and marketing. 



PRICE OBJECTIVES AND STRATEGY 325 

on the subsequent organization of the industry. Even 
where this type of limitation has been used under mar- 
keting agreements, it has (see pages 121, 126) been accom- 
panied by provision that if a given grower's product falls 
exclusively in the off -grades, such exceptions will be made 
as will permit him to continue shipping. The administra- 
tion of any such plan with its exemptions raises many in- 
tricate questions as to whether strict enforcement of with- 
holding by grade tends to discriminate against a grower 
who has been the victim of weather or other growing 
hazard which is common to all members of the producer 
group; or whether the inferiority of his product is due 
to lack of funds with which to provide better fertilization, 
spraying, or other cultural practices; or whether it is due 
simply to carelessness or indifference on the grower's part 
which tends to be encouraged if he is granted exemptions, 
whereas strict adherence to the rule would serve a con- 
structive purpose in the industry. 

Still more delicate is the question if inferiority runs 
along geographical lines, so that strict enforcement of a 
rule for limitation by grade would tend to encourage the 
gradual migration of the industry toward the most favor- 
able growing areas, whereas the opposite course would 
tend to perpetuate the use of lands and (in the case of 
orchard crops) trees which can produce only an inferior 
product. Any collective marketing plan which discrimi- 
nates against such inferior product will tend to destroy 
capital values and raise the whole question of the vested 
interest of their owners. 

With the period in which market adjustment plans 
have been in operation limited in most cases to two sea- 
sons and in many to only one, there is no large body of ex- 
perience on which to generalize as to the soundness of the 



326 MARKETING AGREEMENTS 

decisions reached when such issues were involved. In 
many cases, even where such problems have been per- 
ceived, they have simply been discussed as matters which 
would probably have to be dealt with in the future and 
have not resulted in decisions which have been incorpor- 
ated in agreements, licenses, or rulings. It would appear 
that when such questions have arisen, they have generally 
been met on some sort of opportunistic basis, with the 
control committee adopting some "rule of thumb" appar- 
ently not too hard on any particular group. It seems 
hard to avoid the conclusion that in local supervisory bod- 
ies chosen on such representative principles as are em- 
ployed, the decision is likely to be essentially political 
rather than economic in character. It remains to be seen 
how far the guidance and suasion of government repre- 
sentatives would result in economically sounder action 
than would be taken if the operations of growers were 
conducted on an individual basis rather than through 
these devices of controlled marketing. 

The second and probably the simplest method by which 
marketing agreements employ control of shipments to 
attain stated price objectives is through temporary em- 
bargoes on shipment. Such a "shipping holiday" is a pro- 
tective device used to prevent temporary slumps of de- 
mand or spurts of supply from congesting the market and 
disorganizing a general scheme of prices worked out for 
the whole seasonal movement on the basis of the supply 
and demand adjustment of the season as a whole. The 
season's pattern of prices may contemplate a low level 
on early shipments and a consistently advancing price 
from then until the close of the season; a curve of prices 
from a high level during the scarce period of early ship- 
ment to a lower level during the abundance of mid-sea- 



PRICE OBJECTIVES AND STRATEGY 327 

son; and a return to higher prices at the close of the season 
as supplies again become scarce, or possibly a substantially 
uniform price from beginning to end. Whatever the pat- 
tern, it is consistently held by shippers of perishables on 
the basis of their experience that a temporarily glutted 
market means a disporportionate slashing of prices from 
which it is a slow and painful, if not impossible, under- 
taking to get back to the level which is consistent with the 
supply and demand situation for the whole season. They 
argue that a comparatively small excess of shipments so 
disrupts prices as to involve losses far beyond the gross 
value of the goods marketed during the glut period. 

The mere announcement that no further supplies will 
be forthcoming until stocks in dealers' hands or on track 
are reduced to normal proportions immediately gives the 
trade confidence in their efforts to maintain approxi- 
mately the existing scale of prices. The use of the ship- 
ping holiday under the group marketing device provided 
in the Agricultural Adjustment Act distributes this haz- 
ard over all producers whose crops are coming to market 
on the particular day or days when the embargo is or- 
dered. Use of the method raises the question whether, if 
such collective schemes are continued, it will be thought 
desirable to mutualize this risk still further by providing 
some form of settlement for a product which goes to 
waste during the shipping holiday. The equitable pro- 
cedure would depend upon whether the surplus is of a 
temporary character or whether it accumulates over a 
period; also, whether it is local or general. 

Our third type of supply control rests on a different 
basis than the two we have just discussed; it contemplates 
supply control geographically, that is, among particular 
markets. In general, the distribution controls authorized 



328 MARKETING AGREEMENTS 

in the marketing agreements relate to the total flow to 
the market and do not involve taking out of the hands 
of individual distributive agencies the task of equalizing 
supplies between markets on the basis of their individual 
exploratory and bargaining skill. 10 In a few cases, how- 
ever, the nature of the distributive process, particularly 
as influenced by transportation conditions, presents a re- 
curring possibility that receipts will arrive at certain mar- 
kets at a very irregular rate and, in the absence of any 
control, will be forced to immediate sale, with the same 
sort of demoralization of prices in the particular markets 
that we noted in the preceding section. 

In the present case we are thinking not of highly perish- 
able products such as strawberries or watermelons, but of 
semi-perishable products such as apples, pears, or citrus 
fruits. These products are to a considerable extent sold at 
auction in the large central markets and, according to a 
strongly held theory of shippers, if heavy shipments 
are placed on the market immediately on receipt, such a 
market will decline sharply without a proportionate re- 
covery when, a few days later, shipments are lighter. If, 
on the other hand, the heavy receipts of one day are equal- 
ized by the smaller receipts of the two or three remaining 
days of an auction week, a much more even trend of prices 
may be maintained. This situation is particularly marked 
in the case of shipments of citrus fruit from Florida to the 
four principal seaboard markets — Boston, New York, 

10 This emphasizes the fact that marketing agreements and licenses or 
orders complement rather than supersede co-operative effort. The co-opera- 
tives' effort is directed primarily to improving product and marketing methods, 
including distribution among the various market outlets with virtually no 
control over total supply. AAA market adjustment efforts have had com- 
paratively little influence on the market process as such but have added a 
hitherto unknown power to influence total supply during a period or even 
finally. 



PRICE OBJECTIVES AND STRATEGY 329 

Philadelphia, and Baltimore. Since citrus fruit moves by 
water more than by rail, and since boat shipments move in 
larger units and more irregularly than rail shipments, 
the coincidence of the arrival of one or two boatloads of 
fruit with heavy or even normal railroad shipments is 
likely seriously to derange the scale of prices for the whole 
Northeast section. Prices at private sale tend to be 
strongly influenced by auction quotations and many ship- 
pers believe that prices at minor interior markets are in- 
clined to follow closely those at the big transaction centers 
regardless of the volume of local receipts. Hence they are 
concerned to see that prices at these price-basing points be 
supported through controlled shipments. 

Proration between auction markets, like most of the de- 
vices used under marketing agreements, presents difficul- 
ties as well as constructive possibilities. It may result in 
limitation of the marketing activity of a given shipper and 
his dependent producers simply because of the fact that 
his market connections run to auction markets, whereas 
another shipper and his producer group are not subjected 
to this restraint in the same market at the same time be- 
cause of the fact that they are distributing through non- 
auction points. For the purposes of our discussion, how- 
ever, the point is sufficiently clear that this type of geo- 
graphic limitation is being considered and experimented 
with under collective marketing plans in the belief that 
local congestion of supplies at a given transaction point 
tends to have a depressing effect upon prices in general, 
which can be avoided, or at least mitigated, by control 
which results in auction receipts being offered in such 
markets at a more uniform rate. Among parties to market 
adjustment plans, opinion differs quite sharply as to the 
proper extent to which and methods by which this device 



330 MARKETING AGREEMENTS 

should be employed. Experience in its use has been very 
limited and little if any scientific research applied to the 
problem. 

The fourth type of supply control, and one which is 
very broadly typical of marketing agreement procedures, 
is the "period prorate." It consists in establishing a quota 
of total shipments that may be made by the collective 
marketing group during a given period of time. Since 
such arrangements apply to perishable products, it is 
desirable to make these adjustments at as short intervals 
as is feasible, which, in practice, ordinarily means weekly. 
Where the period prorate is employed, the control com- 
mittee must adopt some more or less fixed philosophy 
as to price and then employ its control over current ship- 
ments as a means of approximating that price objective 
as closely as the market situation permits. It might adopt 
a rather fixed price policy at the beginning of the season 
and adhere to this, regardless of the severity of the with- 
holding operations to which it leads. In practice, the 
committee is more likely to follow an opportunistic pol- 
icy, observing the course of prices during the early weeks 
of the shipping season before supplies become abundant 
and, with this as a basis, decide on an approximate min- 
imum price level which it will support by curtailing ship- 
ments by period prorates subject to adjustments necessi- 
tated by developments in competing areas. 

An interesting case of this type of controlled market- 
ing was presented under the Florida celery agreement 
during the past season. Conditions were relatively fav- 
orable for a good level of prices owing to the shortage of 
celery in competing districts and also to the damage by 
frost which reduced supplies of other winter vegetables 
more or less directly competitive with celery. In this sit- 



PRICE OBJECTIVES AND STRATEGY 331 

uation prices during the early shipping weeks were on 
a more favorable basis than those received for some years 
previously. As the heavy shipping season approached, 
the control committee invoked the seasonal prorate pro- 
cedure provided in the marketing agreement. In the 
first week under control it was decided, after estimates 
were canvassed, to permit the shipment of all the avail- 
able supply. In the three weeks which followed, the pro- 
ration was set successively at 85 per cent, 70 per cent, and 
80 per cent of the estimated available volume. 

Experience indicated that the estimates of available sup- 
ply were persistently inflated and that even when cut to 
an 80 or even a 70 per cent proration basis, practically all 
the celery which was marketable was able to move. When 
it came to the peak of the season, the committee was pre- 
sented with an estimate of 818 cars as available volume 
and a recommendation on the part of the shippers that 600 
cars could be sold n without depressing prices from the 
then rather satisfactory level. This was subsequently re- 
duced to a motion for a prorate on the basis of 575 cars, 
which was countered by a recommendation from a 
grower member of the committee that shipments be lim- 
ited to 500 cars in the hope that the price could be some- 
what advanced. A compromise was effected on the ba- 
sis of 535 cars — a 64 per cent prorate. During this week 
the actual shipments amounted to only 514 cars. Celery 
on track in the markets held at the identical figure of the 
week before, which was not regarded as excessive, and the 
price remained substantially steady, although a few skill- 
ful shippers succeeded in advancing it by 10 cents a crate 
at the close of the week. 12 

11 523 cars had been the peak week's shipments during previous weeks. 

12 The U. S. Department of Agriculture average quotation advanced 5 cents; 
that is, to $2.75 per crate as compared with $3.25 at the beginning of the 



332 MARKETING AGREEMENTS 

The effort made by producers to keep within their pro- 
rated amounts resulted in a closer "stripping" of the cel- 
ery stalks, which in turn produced a superior product and 
did not require the discarding of practically any celery 
of a desirable quality for consumption. In some cases, in- 
dividual producers had to leave in the field fairly sizable 
amounts of celery of good merchantable quality, but the 
total for the region as a whole was a very small percent- 
age. When the control committee came to review this ex- 
perience at the close of the week, the general opinion was 
that the maintenance of price with this very slight sacri- 
fice of edible celery constituted a satisfactory result and 
that in the following week the purpose should be to main- 
tain that level of prices. This, it was decided, could be 
done by a prorate of 75 per cent and was followed by 80, 
80, and 85 per cent respectively in the three succeeding 
weeks. As a matter of fact, however, these prorations 
were hardly more than nominal, since much celery was 
listed which had rather poor chances of being actually 
available for shipment. Shipments ranged from 80 to 88 
per cent of the permitted amount and prices advanced to 
$3.50 per crate during the last week under proration. 13 

Under this sort of procedure, the control committee as 
the representative body of the industry has an opportunity 
to analyze the season's demand prospects and possibilities 

month and $3.80 three weeks earlier. "Receivers seemed to realize that the cel- 
ery industry was determined to control the movement and the market made a 
slight gain. In perspective this week seems to have been a turning point, from 
this time on the sales were easier to make and prices increased practically 
throughout the season." Report of the Chairman and Secretary to the Control 
Committee for the Florida Celery Industry on the 1934-35 Season, June 29, 
1935- 

13 For the three weeks after the termination of control, prices were $3.60, 
$3.90, and $4.10 per crate respectively. Shipments dropped to about 350 cars 
in each of the first two weeks and below 200 cars in the last week. 



PRICE OBJECTIVES AND STRATEGY 333 

in advance and to adopt such a policy as seems best to 
serve the interests of the industry as a whole. Thereafter, 
it must adopt each week a specific procedure which, in 
its judgment, will accomplish the policy originally deter- 
mined upon or some modification of it in the light of 
subsequent developments. From week to week, the com- 
mittee must face the following question from the stand- 
point of all the interests which it represents: will larger 
shipments at a lower price or smaller shipments at a 
higher price best serve the fundamental interest of its 
group — long-time as well as short-time? It must work 
out such a procedure as seems to it most likely to accom- 
plish the desired objective, reviewing each week the suc- 
cesses and failures of that procedure and the wisdom or 
unwisdom of that policy as results actually worked them- 
selves out during the preceding week. 

Our fifth type of supply control is applied to the less 
perishable commodities and takes on quite a different 
character. Instead of setting up a general price objective 
and then interposing certain partial or complete stop- 
pages in the market flow for the purpose of sustaining 
prices at this level during particular exigencies of the mar- 
ket, the control committee or other administrative agency 
sets the total supply for the season in advance. That is, 
it decides in advance that the pack of peaches or other 
canning crops or the volume of prunes, raisins, or walnuts 
to be placed on the market shall be so many cases or tons, 
having estimated that the price at which demand will 
meet with this supply will be satisfactory or at least as 
nearly satisfactory as it is possible to obtain. 

Within this general type of supply control, three major 
varieties are to be noted. In the case of the first cling 
peach agreement, both quantity and price were set in ad- 



334 MARKETING AGREEMENTS 

vance. In the 1934 agreement, however, this arrangement 
was simplified by limiting the total tonnage of peaches 
that might be canned and distributing this quota to in- 
dividual growers on a prorated basis. Canners then were 
free to make purchases from any grower on a competitive 
basis, the theory being that the desire of each canner to 
get as large a fraction of the total permitted pack as 
possible would result in each producer's getting the full 
competitive value of his product. In determining the to- 
tal tonnage to be canned, the industry through its control 
committee has to decide whether maximum permanent 
benefit is to be derived from a relatively small output at a 
high price or a larger use of the available crop at a lower 
price per unit. 

There is little alternative use for such part of the crop as 
is not canned, and a considerable volume of No. 1 
peaches, as well as all of inferior grade, was allowed to go 
to waste in both years that an agreement was in force. 
For that matter, a considerable part of the crop had also 
gone unharvested in 1927, 1928, and 1932 (when there was 
no control program), and in 1930 (nearly half the pack) 
and 193 1 when proration was operated on a voluntary ba- 
sis in the absence of any specific legal provision. In those 
years the processors, even without formal agreement, pro- 
tected themselves by ceasing operations at what they con- 
sidered a safe size of pack, whereas the pressure of a vol- 
ume of raw fruit sufficient to pack practically twice as 
many cases as were put up accentuated the competition 
between producers seeking to get some part of the re- 
stricted outlet. Under the first AAA peach agreement it 
was sought to protect both producers and canners by re- 
stricting the tonnage of raw peaches as well as the pack 
of canned product, with a mutual adjustment of the two 



PRICE OBJECTIVES AND STRATEGY 335 

prices. In the second agreement, volume limitations were 
placed on both harvesting and pack but competition be- 
tween canners was relied upon as a means both of direct- 
ing the packing business into the hands of the most effi- 
cient operators and of securing for producers as high a 
price as conditions in the consuming market for the prod- 
uct would permit. 

Under the license for canners of asparagus, the size of 
the season's total pack was determined in advance, but no 
allocation was made to either canners or growers. In- 
stead, the opening date of the canning season was estab- 
lished and canners bought asparagus freely on a competi- 
tive basis from growers until the quota was filled. There- 
after, no further canning operations were permitted and 
the cutting season ended. Under this arrangement no 
product was caused to go to waste, but the productive 
plant, so to speak, was shut down at a date earlier than 
that which would have been necessitated by technical con- 
siderations or than would have been done by growers act- 
ing without group solidarity. We have noted (page 136) 
that under the first agreement the manner in which the 
quota and the opening date for canning were set tended 
to withdraw some product that would otherwise have 
gone to the fresh asparagus market, but that the second 
agreement sought to avoid this result by a special limita- 
tion of the amount of asparagus to be canned during the 
first three weeks of the season. 

When we turn to the dried fruit industry, we see a 
somewhat more flexible arrangement. Under the raisin 
agreement all fruit of standard grade may be delivered. 
A schedule of minimum prices is established and volume 
of fruit allocated for sale in such quantity as it is thought 
the trade can absorb without impairing these prices. The 



336 MARKETING AGREEMENTS 

remainder of the standard product and all sub-standard 
grades are put in a "reserve percentage." If the market 
shows ability to take more than the original allotted quota 
at the minimum prices during the regular market season, 
this reserve tonnage can be fed into the market at the dis- 
cretion of the control committee, but only at prices set on 
"appraisal" of its value in lower grade uses. The prune 
agreement does not fix a minimum price but puts all sub- 
standard grades in a pool for diversion to by-product uses 
or export dumping. They may not be intermingled with 
the domestic supply of merchantable stock. The price 
philosophy of these agreements places chief emphasis 
upon the attaining of the most satisfactory returns for the 
total product by maintaining the price of all, or a large 
proportion, of the product of superior quality by diverting 
all off-quality fruit and possibly some of standard grade 
into largely non-competitive low-price outlets. This 
general policy of segregated markets and differential 
prices will be further discussed later. 

The walnut agreement is essentially similar to the dried 
fruit agreements in its temporary withholding of a "re- 
serve tonnage" from the market. Its chief difference is 
that it provides that any part of this reserve tonnage may 
at the discretion of the control committee be carried over 
into the subsequent season, if prospects of a short crop or 
expanding demand cause such a course to give promise of 
profitable outcome. 

It will be observed that these five types of supply con- 
trol represent three plans of action ranging from (i) those 
which represent a mere manipulation of the supply in 
point of time or place with no actual withholding; 
through (2) those which cause the diversion of some part 
of the product from what we think of as its highest grade 






PRICE OBJECTIVES AND STRATEGY 337 

use to a subordinate or by-product use; to (3) those which 
through non-utilization of the product result in its pas- 
sive destruction, or in the case of canning crop asparagus, 
its non-production. We should also call to mind one 
other agreement, namely, that for rice, in which the mar- 
keting agreement was made the agency for acreage limi- 
tation and the curtailment in advance of production 
rather than the non-utilization of the crop after it was pro- 
duced. This agreement has now been superseded by a 
processing tax and benefit payment type of production 
control, but proposals have been forthcoming that pro- 
duction control devices be in future incorporated into 
some of the existing marketing agreements in order that 
growers shall be protected against the danger of investing 
their labor and money in the production of a crop for 
which events prove there is no remunerative demand. We 
shall deal with this issue in our closing chapter. 

THE TWO-PRICE SYSTEM 

The phase of market adjustment undertakings which 
reflects most closely the philosophy of other parts of the 
act and of various measures, notably the McNary-Haugen 
bills, which had been proposed before the passage of this 
measure, is to be found in its use of the two-price system. 14 
Under this policy certain agreements segregate the prod- 
uct into two general classes with more or less independ- 
ent price bases. The upper class constitutes the most re- 
munerative market and supplies will be fed into this mar- 
ket under careful control, so that it may be exploited to 
the full under the general principle of monopoly price to 
which we referred in the beginning of this chapter. In- 
stead of being allowed to go to waste, however, the re- 

14 Sometimes referred to as discriminative pricing. See A. C. Pigou, Eco- 
nomics of Welfare, Chap. XIV. 



338 MARKETING AGREEMENTS 

mainder of the product is diverted to a lower price mar- 
ket, principally domestic by-product uses or foreign 
dumping. It was this differentiation between a strongly 
supported domestic price and a residual export price that 
constituted the core of the export debenture and McNary- 
Haugen proposals and which was to the fore in Mr. Peek's 
activities during the drafting of the present law and dur- 
ing the early days of its administration. 

This type of price policy has been exemplified under 
several marketing agreements. In the case of the North 
Pacific wheat export agreement, a virtual subsidy was 
paid on exports as a means of supporting domestic prices. 
In the rice agreements, a marketing fund was raised by 
assessment upon all millers for the purpose of defraying 
extra charges or reimbursing particular dealers for price 
concessions made on part of the rice diverted to "non-rou- 
tine" markets for the sake of supporting basic prices in 
the established markets. 

Another type of two-price system is illustrated by pea- 
nuts and walnuts. When the output of walnuts in this 
country was only sufficient to meet the trade demand for 
walnuts in the shell, this semi-luxury demand, limited 
largely to holiday uses, yielded a fairly high level of prices. 
With the increase of supplies, grading methods were im- 
proved and all cull walnuts were cracked and came to 
market as walnut meats (either whole or broken), where 
they found a quite different and lower price demand 
among bakers, confectioners, and ice-cream manufactur- 
ers. It has been a constant policy of group marketing in 
this field to retain the differentially higher price for wal- 
nuts in the shell, and the marketing agreement furnished 
the most effective means yet devised for preventing such 
an unrestricted flow of supplies into this market as to blur 



PRICE OBJECTIVES AND STRATEGY 339 

or destroy the price differentiation between it and the 
market for non-table nuts. In the case of peanuts, the 
line of demarcation falls between shelled nuts, used 
largely by confectioners, and the nuts crushed for oil. 
It was proposed that the agreement be employed to main- 
tain a differential between the two sets of prices in order 
that the demand for nuts for table and confectionery use 
might be kept dissociated from the residual demand for 
nuts in the industrial market. Although rejected then, the 
plan was later carried out under the processing tax. 

Much the same differentiation has been made in the 
case of olives. This commodity in the canned form yields 
a comparatively remunerative price to the grower, and it 
is probably only for this market that olives could be prof- 
itably produced in this country. However, if the demand 
is to be met in years of normal yield, there will be some 
years of flush production when the supply is excessive. 
Likewise, it is probable that in the enthusiasm of the early 
days plantings of olive trees went somewhat beyond the 
point that would be justified by market demand for the 
canned product. Hence any scheme of controlled market- 
ing contemplates the support of prices of olives used for 
canning by diverting to the crushers not only culls but 
all olives in excess of the amount that could be sold in 
canned form at the desired scale of prices. The oil mar- 
ket, in contrast to the narrowness and inelasticity of the 
canned olive market, is much larger and more elastic. 
A tonnage of olives which would completely demoralize 
the price of canned olives has a scarcely discernible ef- 
fect on the price of olive oil. This difference in elasticity 
is rather generally characteristic of the markets for com- 
modities handled under a two-price system. 

Although lemons were not included under the Cali- 



340 MARKETING AGREEMENTS 

fornia citrus agreement, they have been handled by the 
large co-operative association of growers under a modified 
type of two-price plan. There was no secondary market 
for the fruit at the time that supplies increased to the 
point where they were felt to have an unduly depressing 
effect on the prices of fresh fruits. The co-operative, how- 
ever, pioneered the way in the development of by-prod- 
uct plants, which created a secondary market. The lemon 
situation differs from the ones which we have been con- 
sidering in that the market for by-products is relatively in- 
elastic and the yield on lemons processed for by-products 
is very low as compared with those going to the fresh 
fruit market — about one to ten. 

Dairy prices are also sometimes cited as an illustration 
of discriminative pricing under the monopoly powers of 
the Agricultural Adjustment Act. 15 It is evident that 
the strategy of the AAA undertakings in this field and of 
the co-operative ventures which antedated them sharply 
differentiate the fresh product and the processed product 
under a two-price system. It differs somewhat, however, 
from the illustrations which we have been discussing. 
Dairying is not a single industry which produces prima- 
rily for the high-priced (fluid) market with a more or 
less incidental surplus processed for by-product use. But- 
ter and cheese manufacturing are co-ordinate branches of 
the industry along with the fluid milk business. They 
have some separate producing areas from which only oc- 
casional supplies of fresh milk or cream are diverted to 
more or less distant fluid markets. Likewise, evaporated 
milk production is fairly well segregated from both fluid 
milk and butter and cheese production. In some regions, 

15 John Cassels, "The Fluid Milk Program of the Agricultural Adjustment 
Administration," Journal of Political Economy, August 1935. 



PRICE OBJECTIVES AND STRATEGY 341 

however, the different branches of the industry overlap 
and create a wholly conflicting situation. 

Fluid milk plans have in general sought to maintain 
a superior price for the fresh commodity and to support 
this by allowing such part of the milk of producers as can- 
not be sold at this price to drop back into butter and 
cheese use. While no agreements have been developed 
in the butter or cheese industries, co-operative control 
has sought to maintain a differential above the price paid 
for milk at condenseries. Thus such discriminative rela- 
tionships as were attempted among several branches of 
the industry were of a very complicated and not very suc- 
cessful sort. The branches of the industry have neither 
been integrated under a single control agency nor co-or- 
dinated by series of mutually related agreements designed 
to support a comprehensive scheme of differential prices. 
There were local agreements and licenses covering vari- 
ous fluid milk markets and national agreements covering 
evaporated and dry skim milk. 16 But the middle area of 
cheese and butter prices never succeeded in finding its 
place in this scheme of control. It seems probable that 
the breakdown of many of the fluid milk price efforts was 
due to an attempt to maintain an artificial differentiation 
of their prices from the rest of an industry of which eco- 
nomic forces inevitably make them an integral part. 

FIXED PRICES AND OPEN PRICES 

Our discussion of price-making theories and procedures 
under marketing agreements has been limited thus far 

16 It is dry or powdered milk which probably is to be regarded as the 
residual element or only true by-product in this elaborate price structure. 
Fluid milk, cream, butter, cheese, and evaporated milk have such a closely 
interlocked relationship, geographically and functionally, as to seem to con- 
stitute a single scheme of prices constantly approaching equilibrium through 
a scheme of differentials based on quality and delivered costs. 



34 2 MARKETING AGREEMENTS 

primarily to devices to bring market supply under control 
as the means of attaining price objectives. In the main, 
these objectives have been stated in somewhat general 
terms and have been left in a rather flexible position sub- 
ject to revision at short intervals in the light of the suc- 
cess achieved or difficulties encountered in connection 
with control operations. To some extent, however, parti- 
cipants in marketing agreements have turned to the more 
rigid proposals for fixing price schedules in the belief 
that the possession of control of the market movement 
will enable them to enforce such price schedules upon 
the consuming public. Price fixing seems to be the device 
to which the economically uninitiated turn most quickly 
and generally when any movement for price betterment 
is launched. 

In response to the urgings of local interests, fixed prices 
were, as we have seen, included in a number of the early 
agreements. Generally speaking, however, the Adminis- 
tration consistently set its face against this procedure, 
yielding to advocates of this method only where there 
seemed to be special reasons justifying such a precedure. 
With reference to general crops, such special circum- 
stances were not found to exist in connection with any 
perishable vegetables or fruit except Northwest tree fruits. 
With some dried fruits and nuts, there had been a cus- 
tom of the trade to quote prices which would be guaran- 
teed against decline for some weeks or months rather than 
to have a progressive bargaining market. For this and 
other reasons it seemed expedient to announce a specific 
scale of prices under agreements in this group at the open- 
ing of the season and to maintain it for at least a substan- 
tial part of the marketing season. Fixed prices were also 
named for apples under the Northwest deciduous tree 



PRICE OBJECTIVES AND STRATEGY 343 

fruit agreement, but the special reason there seems much 
less conclusive and the results far from successful. Even 
in the case of canned cling peaches, the price fixing of the 
first year gave way in the subsequent agreement to a 
method of setting the amount of the total pack and leav- 
ing all canners to compete for their share of producers' 
supplies. 

Whenever the fixing of prices at any point in the mar- 
keting process is undertaken, the question immediately 
arises as to whether prices at other stages of the process 
will be or can be brought into suitable adjustment to those 
which are fixed. Generally speaking, the AAA sought to 
limit any price fixing to the point at which producers dis- 
pose of their product to processors and distributors. The 
area within which marketing agreements have been un- 
dertaken, however, is precisely that part of the marketing 
system in which co-operatives are particularly active. Since 
the essential character of the co-operative consists in its 
performance of processing or distributive functions, after 
the product leaves the hands of its members, there is no 
bargain or settlement at the point where producers' prices 
are established in private trade. 

A similar situation obtains where producers do their 
own distributing, as in the case of local milk groups or 
where processors or handlers grow their own product. It 
was sometimes urged that this was a reason for naming 
such resale as well as producer prices in agreements and 
licenses. This, however, amounts to establishing dealers 
or processors' margins for all regular commercial opera- 
tors in these fields. Aside from the fact that this was not 
in the judgment of many interpreters of the act the inten- 
tion of Congress, any attempt to carry through such a pro- 
cedure involves a much fuller access to books and records 



344 MARKETING AGREEMENTS 

of handlers than would be necessary if producers' prices 
alone are stipulated. The attempt to make such compre- 
hensive checks of the business operations of handlers not 
only magnifies greatly the administrative task of the Ad- 
justment Administration but develops so much friction as 
to threaten the further participation of processors and dis- 
tributors in any market adjustment program. Resale 
prices were therefore entirely eliminated and all fixed 
prices dropped from all plans except those for milk. This 
result was incorporated in the amendments of August 24, 

*935- 

During the course of marketing agreement negotia- 
tions, the proposal has been forthcoming at various times 
that instead of naming prices which were to be binding on 
all members, it would simply be required that each ship- 
per or processor post with the control committee, for the 
information of all other signatories or licensees, a sched- 
ule of prices which he would pay until further notice. 
This "open-price posting" system has actually been incor- 
porated in only three agreements which were made effec- 
tive, but it is a device which would seem to have wider 
fields of future usefulness. At times, it might be used to 
preserve the competitive independence of the shipper or 
processor and to maintain the ability of the market to 
make flexible adjustment to shipping conditions which 
may be too complicated and too swift moving to be judged 
adequately by a control committee. At the same time, if 
properly enforced, 17 it would protect the producer from 
the danger of making his decision as to the price at which 
he will sell his goods on a basis of individual bargaining 
without knowledge of conditions obtaining for the group 

17 Administratively, it is practicable only if the shipping area is compact 
and the number of handlers small, so that the task of checking compliance 
will be kept down to manageable proportions. 



PRICE OBJECTIVES AND STRATEGY 345 

as a whole. Obviously, the field of application for an open- 
price posting system is limited to situations in which the 
product is sold f. o. b. the local shipping point or bought 
by processors at the farm or a local processing plant. 

SOPHISTICATED PRICE-MAKING SYSTEMS 

Thus far, we have been discussing comparatively simple 
price-making mechanisms in which transactions are car- 
ried on between sellers and buyers in the effort to dispose 
of an existing supply on as favorable terms as possible. It 
modifies the traditional "higgling of the market" only to 
the extent that group control is imposed upon the indi- 
vidual's decision as to the quality of his product which he 
will part with at a given level of price. There remain to 
be noted two cases in which this rather simple supply and 
demand mechanism has given place to more indirect and 
elaborate price-making mechanisms which institution- 
alize the process to a much greater degree and give it a 
character which in Chapter III we referred to as "econom- 
ically sophisticated." 18 The outstanding case concerns 
fluid milk marketing in metropolitan markets. 

Growth of urban consuming centers, with accompany- 
ing displacement of farmers from a considerable suburban 
zone, along with technical developments such as pasteuri- 
zation and highly efficient refrigerated transportation, 
pushed the producer and the consumer of milk further 
and further apart. This process was accompanied by the 
growth of large distributing organizations, some of them 
operating over a wide geographical area, the counter-or- 
ganization of producers' co-operative associations, and the 
expansion of regulatory functions of municipal authori- 

18 Somewhat analogous developments have taken place in other agricultural 
commodities, notably the organized commodity markets with their future 
trading in terms of selected months, short selling, and the like. 



346 MARKETING AGREEMENTS 

ties — continuously with reference to standards of sanita- 
tion and even on price questions in emergencies when 
conflict between producers and distributors interfered or 
threatened to interfere with milk supply. Furthermore, 
peculiar elements of mass psychology had come into the 
situation. Changing ideas as to diet offered producers 
and distributors of milk an opportunity to expand their 
market, which they were prompt and aggressive in taking 
advantage of. They found, however, that to establish lib- 
eral milk consumption firmly in the habits of consumers, 
it was important that supplies should be always and con- 
veniently accessible and that price changes should occur 
rather infrequently. These results must be accomplished 
in the face of the fact that consumers' demand is affected 
sharply and sometimes very unexpectedly by weather 
changes, the occurrence of holidays, vacation shifts of 
population, and the like. 

Under such circumstances, it is necessary that a very 
broad and a very long view of the problem of purveying 
fluid milk to city users be taken. This seems to necessitate 
the bringing of a strong majority of interests on both the 
producer and distributor side into a single price-making 
mechanism. If collective bargains are to hold, they must 
reflect quite accurately the actual conditions on both the 
supply and the demand side. They must provide a re- 
munerative price for the necessary number of dairymen 
and a scale of operations in proportion to the amount of 
consumption that will come forward or can by advertising 
or sales promotion be drawn forth at a given level of 
standardized prices readjusted rather infrequently. 

We noted in Chapter X that this has resulted in a rather 
conventionalized scheme of class prices based on any- 
where from two to Rwc types of use, differently defined in 



PRICE OBJECTIVES AND STRATEGY 347 

different markets, and that in many markets the payments 
made by the distributor to the producer are readjusted by 
a system of equalization payments designed to bring his 
individual situation to or toward the norm of the distribu- 
tor group. 

On the producer side, we noted that under the more 
elaborate systems, the group bargaining to which the pro- 
ducer was a party involves negotiating both a price basis 
and one or more differentials and the terms upon which 
his product will be classified in the several payment cate- 
gories. The point which we wish to make is that the 
price-making method here has, under the exigencies of 
market development, departed far from any "natural" 
competitive relationship between the supply of a given par- 
cel of milk on a particular farm and the individual house- 
wives, restaurateurs, or others who become the ultimate 
buyers. It will be noted that prices have been given a 
conventionalized character, thoroughly artificial in terms 
of any direct bargaining between individual producers 
and individual consumers such as would simply "clear the 
market" from day to day. This conventionalizing and 
sophisticating of prices is, however, distinctly purposive 
and designed — however ineptly as yet — to effectuate a per- 
manent supply of milk of desirable quality and to estab- 
lish fixed and liberal habits of consumption of a high 
quality product on the part of consumers. 

What constitutes a "right price" under such circum- 
stances is a question of the utmost difficulty and one 
which no set formula can answer. Scientific methods of 
analysis should be relied upon to guide those who under- 
take to set such prices and readjust them from time to 
time. But the conclusions to which such analytical meth- 
ods point in a given situation must be checked against nu- 



348 MARKETING AGREEMENTS 

merous salient facts — psychological as well as economic — 
and the price finally negotiated must be justified by prag- 
matic tests rather than by any rigid or mechanical logic. 
The really significant question is whether such scales of 
prices can in the long run establish a stabilized, because 
remunerative, supply of the kind of milk the market 
wants if worked out under purely co-operative auspices 
with a considerable fringe of independents conforming 
to or diverging from these prices in such ways as they see 
fit, or whether all parties should be constrained to comply 
with the price system arrived at by negotiation of the 
majority, supplemented by governmental guidance. No 
body of experience is yet available from which to deduce a 
convincing answer to this question. It would seem likely, 
however, that considerable further light will be shed on 
the question if the present field of experimentation is fur- 
ther cultivated during the coming years. 

While no other commodity has furnished an illustration 
of such a process at all comparable to that of fluid milk, 
germs of the same development are discernible in other 
marketing agreements. We have noted in several in- 
stances (see pages 121, 126, 155) that where proration or 
withholding operations are provided, the control com- 
mittee is empowered to make special exemptions in the 
case of producers whose product falls entirely or more 
than proportionately in certain excluded classes. In actual 
operation, likewise, it has been found that peculiar 
weather conditions may cause the product of certain areas 
to come to a marketable stage just at the time when prora- 
tion is particularly severe. Or the peculiar soil conditions 
or cultural practices of an individual or group of growers 
may cause the incidence of control to fall upon them with 
unequal force. In such cases the proposal has been forth- 



PRICE OBJECTIVES AND STRATEGY 349 

coming that this risk should be equalized over the whole 
group in somewhat the manner that conditions are equal- 
ized under the elaborate milk price systems. 

In so far as this might be done, it would constitute a fur- 
ther departure from the price structure which would grow 
up in the absence of controlled marketing. Once such 
controls are undertaken, it seems practically certain that 
individual growers will be alert to demand protective de- 
vices against the possible unequal incidence of control de- 
vices. Since exemption from the plan tends to defeat its 
own purpose, the natural tendency would be to distribute 
this hazard over the whole group. Such an effort, besides 
introducing complications, presents two possibilities: (1) 
that it will have a wholesome and stabilizing effect on the 
industry by protecting the individual against hazards 
which are disproportionate to the size of his economic en- 
terprise; or (2) that by socializing hazards which are due 
to injudicious selection of land or inferior cultural meth- 
ods, it may tend to retard the wholesome adjustment of 
the industry rather than to advance it. In any event, it 
raises the same sort of question which we have met in 
other connections, namely, whether the administration of 
such a device can be made essentially objective and scien- 
tific, or whether it will inevitably take on a political char- 
acter and action will be determined in response to group 
pressure rather than economic merit. 



CHAPTER XV 

RESULTS AND FUTURE USEFULNESS OF 
MARKET ADJUSTMENT DEVICES 

Any attempt to appraise the results which farmers have 
attained under the marketing agreement and licensing 
provisions of the Agricultural Adjustment Act is beset 
with extreme difficulties. It is an even harder task than 
that for those commodities which come under the pro- 
duction control and benefit payment program. Cotton, 
wheat, and livestock are dealt in largely on organized ex- 
change markets where actual prices follow quotations 
closely and grades are highly standardized. It is possible 
to compute with some degree of plausibility the amount of 
price advance attributable to the adjustment program, to 
impute the incidence of the tax, and to estimate with fair 
accuracy the net enhancement of income which produc- 
ers of these staples have enjoyed. When it comes to market- 
ing agreements, we are dealing in the main with specialty 
products for which price data are much more defective and 
where market conditions and price behavior are so com- 
plicated and uncertain as to make the task of estimating 
pecuniary results extremely hazardous. 1 

This chapter therefore will be couched in terms of quali- 
tative analysis rather than statistical computation. The 
purpose will be to shed light on the question whether mar- 
keting agreements and licenses (now orders) have intro- 

1 The Marketing Research Division of the U. S. Bureau of Agricultural 
Economics has been called upon to attempt the task for the benefit of the 
Adjustment Administration. No doubt results will eventually be obtained 
which will be of value, but this will be more by way of guiding subsequent 
action than of establishing the precise magnitude of the gains. 

350 



RESULTS AND FUTURE USEFULNESS 351 

duced into our market institutions a new mechanism or 
agency of distinctive usefulness to farmers either tem- 
porarily or permanently. In pursuing this inquiry, we 
shall not attempt to answer the broader question whether 
any power to enhance their incomes which these devices 
might confer upon farmers is economically sound, socially 
desirable, or politically safe. This larger question is de- 
ferred to a subsequent volume in this series. We shall, 
however, seek to show how market controls under the 
AAA have during the short run been operating, whether 
to the hurt or help of the agricultural groups involved, and 
how they seem likely to operate in the long run. Only after 
getting a clear picture of the actual process of their opera- 
tion shall we be in a position to appraise their potentiali- 
ties either for rational economic guidance of the affairs of 
particular agricultural groups or for action which might 
be prejudicial to other interests. 

LIMITED GAINS TO MILK PRODUCERS 

Fluid milk marketing agreements and licenses made up 
the largest field of activity under market adjustment plans 
and all in all have probably marked the hardest fighting 
for aggressive enhancement of prices. To a limited extent, 
milk and cream prices have been advanced under these 
agreements and licenses and to a greater extent returns 
have been maintained at a time when strong forces were 
pulling to lower them. Since fluid milk producers were 
already organized under numerous and aggressive co- 
operative marketing agencies for the sake of obtaining 
these same objectives, it is certain that even in the absence 
of an agricultural adjustment act there would have been 
strong group effort which would doubtless have had some 
results in this direction. One would be bold indeed to 



352 MARKETING AGREEMENTS 

venture any estimate as to how much less effective, if at 
all, these co-operative bargaining efforts would have been 
than those under the Adjustment Administration. 

Dr. Black presents a table 2 of quoted prices in 23 li- 
censed markets which shows that, during the period from 
May 1933 to September 1934, the advance in the former 
exceeded that in the latter by 36 cents per hundredweight. 
He points out, however, that there is no way of knowing 
whether prices actually paid conform more closely to 
published quotations after the licenses than before. It is, 
however, generally assumed that such was the case. 3 

All that anyone can in honesty say is that the "cen- 
tralized strength of government" back of these agree- 
ments and probably to a limited extent legal enforcement 
efforts, by checking certain competitive practices of those 
outside the established collective bargaining organizations, 
exerted an appreciable influence toward price maintenance 
or advance. There were of course other AAA measures, such 
as butter purchases and cattle purchases, which tended to 
strengthen fluid milk prices, but these lie outside our pres- 
ent inquiry. We turn, therefore, to the qualitative ques- 
tion whether under the law and procedures as developed 
the fluid milk industry has evolved marketing institutions 
which in the future promise to insure it a more prosperous 
and stable economic position. 4 

Co-operative organization had, prior to the passage of 

2 John D. Black, The Dairy Industry and the AAA, p. 344. 

3 There have been other statements purporting to show the amount of 
benefits in more definite and more optimistic terms. 

4 Even if it appears that the present supplementing of private organizational 
effort by government activity has shown itself an inadequate or unsatisfactory 
method of dealing with the several interests that are concerned in the milk 
business, there would be the question whether this experience sheds any light 
on the sort of agency which should in the national economic interests be set 
up to deal permanently with the highly important business of fluid milk pro- 
duction and distribution. 



RESULTS AND FUTURE USEFULNESS 353 

the Agricultural Adjustment Act, been utilized more 
comprehensively and more thoroughly by the milk in- 
dustry, as a means of attacking its economic problems, 
than by any other major agricultural group. At a few 
spots elsewhere a comparably intense development of co- 
operative procedure and policy had taken place, notably 
in cranberries and California oranges. But milk produc- 
ers' co-operatives were organized both intensively and ex- 
tensively. They stretched from Maine to California. 
They had for years been federated in an important and 
active national organization with a permanent secretariat 
in Washington. 

In such organizations as the Dairymen's League of New 
York and the Land o' Lakes Creamery Association of 
Minnesota, they had become leaders in their respective 
fields and had achieved an apparently permanent position. 
They had built up a rich store of intimate knowledge and 
analytical thinking on the problems by which this busi- 
ness has come to be confronted following the growth of 
large municipal areas and the reorganization of agricul- 
ture which has been necessitated by both the technical 
developments and the commercial evolution of our own 
and other countries. They had thought their way into 
the intricate problems with which they had been forced 
to come to grips with a persistence and penetration which 
is conspicuously lacking in most lines of agriculture. In 
the effort to meet these problems they had devised a 
variety of complicated and ingenious methods for organ- 
izing the purveyance of dairy products to the public and 
of influencing the course followed by dairymen in con- 
ducting productive operations for the purpose of supply- 
ing this market. Advice of educational agencies, plus 
a modification of the manner in which the consumer's 



354 MARKETING AGREEMENTS 

dollar was distributed among the various individuals who 
participate in the process of supplying him with dairy 
products, was relied upon as the means for solving the 
problems of the dairyman. These methods are briefly set 
forth in Chapter X of this volume but with much more 
fullness in the companion book by John D. Black (The 
Dairy Industry and the AAA). 

The point which we wish to make of all this in draw- 
ing together our conclusions with reference to the wisdom 
of AAA proposals is that the growth of co-operative effort 
and of private enterprise, much of it of a large-scale cor- 
porate character, in the field of milk and dairy products 
distribution gives a distinctive setting to the effort toward 
comprehensive "economic adjustment" as visualized under 
the AAA. 

Three general propositions will serve to set forth the 
nature of this situation, (i) The conditions of the busi- 
ness in the larger metropolitan markets, particularly of the 
industrial Northeast and North Central states were such 
that continuation of purely individual or small-unit types 
of organization between farmer and milk consumer, with 
the flexible competitive market which it implies, had long 
ago become impossible at least without a degree of govern- 
ment servicing that was not likely to develop (see Black, 
Chap. IX). On the distributive side the growth of large 
corporate organizations, regional or nominally national in 
scope, had inevitably led to counter organization among 
producer interests which, as we have said, had taken pre- 
dominantly the co-operative form. (2) In spite of much 
that was sound and commendable in this type of organiza- 
tion, it had, not unnaturally, led to a succession of mutual 
adjustments in the nature of practical compromises be- 



RESULTS AND FUTURE USEFULNESS 355 

tween producer and distributor interests. In some quarters 
it was thought that these adjustments tended to ignore or 
subordinate the economic interest of the ultimate con- 
sumer. Experience seemed also to show that they lent 
themselves to the pressing of control to the point where 
prices of fluid milk in markets thus engaged were out of 
line with those in other parts of the dairy industry. (3) In 
this situation the Agricultural Adjustment Act proposed 
that the government come in as a third party to these 
evolving producer-distributor institutions, to the end that 
the whole matter be brought out into the daylight rather 
than running the risk of assuming a character of more or 
less clandestine deals between interests which by present- 
ing a united front could protect their own position even 
if the interests of other producers or distributors or of the 
consumer were to some extent sacrificed in the process. 
It sought also to extend this system of regulation and such 
improvement as could be introduced into it to all markets 
in which local interests appeared to be ready to accept and 
participate in such an institutional development. 

Shall we now accept the undoubted difficulties and the 
somewhat doubtful benefits of two years' experimentation 
along this line as sufficient evidence that we should go 
back to the antecedent condition — the aggressively de- 
veloping but imperfectly regulated tug-of-war between 
large and powerful corporate groups of processors and 
distributors and such producer groups as grow up in the 
counter organization movement of the co-operatives? 
Or shall we continue the AAA devices as agencies to pro- 
mote and facilitate continuous and intensive study of the 
whole problem of purveying fluid milk and related dairy 
products to our urban population in an effort to perfect 



356 MARKETING AGREEMENTS 

these newly introduced modifications of the marketing 
system ? 5 Are these devices calculated to see that the in- 
terests of the whole dairy industry are jointly considered 
in due relation to one another and at the same time to 
other branches of agriculture and of agriculture to the 
whole economic structure ? 

As to how the super-organization provided under the 
AAA squared with the purpose just stated, there has been 
a divergence of opinion. In the main, co-operatives and 
distributors have manifested a desire to have this a collec- 
tive bargaining set-up in which producer and trade in- 
terests could effect their own compromises and simply 
have the Adjustment Administration as an agency for 
regularizing a comprehensive collective bargaining organi- 
zation which would bring previous "independent" in- 
terests into their closed shop. This view makes the Ad- 
justment Administration an agency not vested with any 
real control over the nature of the adjustments arrived at, 
but rather one designed to render certain types of admin- 
istrative service and to put the strong arm of government 
back of the enforcement of whatever bargains the coalition 
of distributors and producers' associations might arrive at. 

A much more positive role than this is assigned to the 
government agency in the philosophy of the Adjustment 
Act and of the Adjustment Administration. It is con- 
ceived as being strongly influential, if not actually con- 
trolling, as to the schedule of prices arrived at. For a 
national body entrusted with responsibility for all geo- 
graphic sections and all branches of agriculture, this 
would imply that its function would be to see that scien- 
tific and impartial study was given to all the factors of 

5 A third alternative of making some entirely different attack on the whole 
problem is logically possible but outside the scope of this book. 



RESULTS AND FUTURE USEFULNESS 357 

supply and of demand entering into a given milk mar- 
keting situation so that the general level of milk prices 
established and likewise the price differentials between 
different parts of the fluid milk structure were so related 
to the milk product industries and to competitive branches 
of agriculture as to stabilize the industry. This would 
mean maintaining as large and dependable a flow of milk, 
under required health standards, as the consuming public 
was willing and able to take at prices at which farmers 
could afford to produce. In practice, however, even the 
staff of the AAA in preparing agreements and licenses 
and the Administrator and Secretary of Agriculture in 
approving them have departed from this long-run and 
conservative view as to what could be accomplished in the 
way of price raising and have in some measure accepted 
the more militant and short-run views espoused by pro- 
ducer and distributor organizations. 

Perhaps this was the only reasonable interpretation of 
the mandate by Congress. But certainly during the first 
two years of experimentation under the marketing ad- 
justment provisions of the act more things were under- 
taken in more markets than could possibly be brought to 
successful fruition. The milk groups in many small 
markets where producer and distributor organization had 
not been carried far nor had any long period of growth 
displayed a naive faith that swift and spectacular results 
could be accomplished by the mere legal provisions of 
the new statute. In some degree against their better 
judgment, but in some degree also because of an easy 
optimism of their own, various persons in the AAA lent 
themselves to the formulation of marketing plans which 
were from the start unworkable in the markets to which 
they were applied. In some cases the difficulty grew out 



358 MARKETING AGREEMENTS 

of the attempt to take elaborate price mechanisms which 
had been worked out. over a long period of time in the 
larger markets and apply them to quite different situa- 
tions in markets whose general conditions were such as to 
need or permit only a much simpler pricing system. 

What appears to have been proved in these two years of 
operation is that the results which can be accomplished 
through controlled marketing under the "centralizing 
power of government" are much more narrowly circum- 
scribed by economic limitations than many people supposed 
in the summer of 1933. What has not yet been demonstrated 
is whether, in certain large metropolitan markets where 
complex situations require a degree of centralization 
greater than or different from that already developed 
under co-operative and distributor auspices, a government 
agency of the sort provided under the Adjustment Act 
would permit the government to play a positive role 
which would be of real and lasting benefit to the milk in- 
dustry. It is the writer's belief, however, that with the 
more careful definition of the terms of the experiment 
provided under the recent amendments and with the disillu- 
sioning and enlightening experiences of the past two 
years and the narrowing of the area of experimentation 
(with prospects of coming down to a dozen or fifteen 
markets) it is highly desirable that we continue for the 
present the legal authorization under which we may con- 
tinue the effort to improve methods of purveying fluid 
milk to metropolitan markets. The argument for such a 
view will be set forth more fully after we bring the other 
part of the marketing adjustment field into the picture. 

GENERAL CROPS 

Turning now to "general crops," we are confronted by 
the question of whether prices or incomes were enhanced 



RESULTS AND FUTURE USEFULNESS 359 

not for a single commodity but for some 25 distinct prod- 
ucts for which active operations have been undertaken 
under the various marketing agreements made effective in 
this group. Moreover, some of these commodities are fur- 
ther subdivided either geographically or according to type 
or method of handling. For instance, asparagus is divided 
between the fresh product and the canning crop. Citrus, 
which is counted as one in our list of 25 commodities, 
would really need 7 separate price studies if we were 
attempting a statistical measure of price results and in- 
come benefits, since there are three separate operating 
territories covered by agreements and each produces at 
least two of the three distinct types of fruit — oranges, 
tangerines, and grapefruit. For all the commodities or 
subdivisions for which marketing plans have been put 
into active operation, the economic circumstances in the 
producing section and the market situation show distinc- 
tive differences which were influential in determining the 
^precise terms of the agreement and license entered into 
and which have conditioned its operation. In some cases 
it would be extremely difficult to demonstrate any actual 
pecuniary advantage from the operation of the market- 
ing plan, whereas in others a striking price improvement 
is clearly evident, and there seems good reason for ascrib- 
ing a substantial part of this gain to the influence of 
factors resulting from the license. (See pages 145, 170, 

i75> 176, 332.) 

The significance of marketing adjustment has been 
slight indeed as compared with production adjustment 
and its accompaniment of benefit payments, if we are 
to judge the matter in terms of the additional income 
diverted toward the agricultural class and of its possible 
effect in stimulating or retarding economic recovery or 



360 MARKETING AGREEMENTS 

of contributing over a period of time to a more economi- 
cally sound and stable agriculture as part of our national 
economic structure. The aggregate of price enhancement 
and benefit payments alone on staple crops subjected to 
production control programs during the past two years 
approaches a billion dollars (partly offset by that part of 
processing taxes which was shifted back upon the pro- 
ducer). It would be a hardy calculator indeed who 
would undertake to demonstrate that there had been 
additions to producers' incomes as a result of marketing 
adjustment efforts covering special crops which would 
total more than 25 million dollars. 6 Even this gain has 
been in part offset by costs of administration borne by the 
government and by assessment on handlers, not to men- 
tion a considerable amount of unpaid labor and no little 
cash expense incurred by their promoters in connection 
with the preparation or the subsequent operation of these 
undertakings. 

But even if there has been no impressive and immediate 
pecuniary gain to the groups affected as a result of this 
venture, can we discern other and perhaps broader fields 

6 H. R. Wellman, former head of the General Crops Section of the Adjust- 
ment Administration comments (in private correspondence) : "I believe I can 
demonstrate that the agreements in California resulted in an increase in re- 
turns to growers over what they would have been without agreements, at 
least 15 to 20 million dollars." The bulk of the general crops agreements 
which became effective were of course located in California, though some 
benefit is apparent on agreements in the Northwest and in Colorado, Texas, 
and the Southeastern states. Probably the largest benefit under agreements 
in this group was derived by Florida celery producers. The control com- 
mittee states that growers received "about 60 to 80 cents more per crate during 
the weeks that proration was in effect than they had received during the cor- 
responding weeks the previous season. Many factors entered into the price 
and market supply of celery, but it seems to us that the control movement was 
the largest single factor responsible for this increase in growers' returns." If 
we impute 50 cents per crate of gain as due directly to the agreement, this 
would show a benefit of approximately 1 million dollars. In all probability 50 
cents per crate is too large an allowance. 



RESULTS AND FUTURE USEFULNESS 361 

of usefulness in which it has demonstrated its value to 
these groups as an addition to or modification of the eco- 
nomic institutions under which the commercial distribu- 
tion of these products is effected ? 

Throughout this book we have emphasized the point 
that marketing adjustment under the AAA is essentially 
an extension of the philosophy and practices of group 
marketing which have been evolving under the co-opera- 
tive movement in the United States during the past 75 
years. Certain of its distinctive manifestations in the fluid 
milk field have already been discussed. Developments in 
the horticultural field have likewise been vigorous and 
original, but they have taken on different forms because 
of the differing circumstances in the industry. Whereas 
fluid milk co-operatives seek to organize the various 
sources of the commodity as the supply converges upon 
a particular consuming center, the horticultural co-opera- 
tives seek to organize the distribution of supplies from a 
specialized area of intensive commercial production 
among all the possible consuming centers in which it 
may find a market. And whereas the milk co-operatives 
are preoccupied with maintaining a continuous flow of 
product which is produced and consumed every day in 
the year, the horticultural co-operatives are to a consider- 
able extent concerned in making adjustment to sharp 
fluctuations of supply which these products are subjected 
to because of the growing conditions of the given year. 
They are concerned also about short-run emergencies due 
to the great irregularity in time and rate of ripening or 
the marketable quality of the product in response to the 
vicissitudes of rain, heat, frost, insects, and disease. 

They have felt, therefore, a strong need of an organiza- 
tion designed along lines of service and protection, assist- 



362 MARKETING AGREEMENTS 

ing the whole group in distributing its product so effi- 
ciently as to mitigate the peculiar hazards to which it is 
subject. Being geographically remote from a diverse and 
rapidly changing market, they have need of the best of 
market news service, skilful routing and diversion of 
shipments, inspection, handling, and offering of supplies 
in the market. Equalization of offerings has meant divert- 
ing supplies from markets where demand was least satis- 
factory or withholding them at times when demand was 
insufficient to pay selling, shipping, packing, and harvest- 
ing charges, together with any other cost items that the 
grower might see fit to include in the supply price to 
which he would hold if he knew in advance the return 
which his product would bring if put on the market. 

In commodities such as these, characterized in general 
by an inelastic type of demand, having high marketing 
costs, and being produced under specialized types of farm- 
ing, poorly organized marketing results in losses so severe 
as frequently to threaten the solvency of whole producing 
sections, including the towns and cities to which the 
farming areas are tributary. Thus bankers and merchants 
have joined the farmers in supporting comprehensive 
moves for so-called "orderly" marketing. 

In so far as such movements result in more efficient 
handling of the product and the avoidance of sending it 
into markets which are unable or unwilling to repay the 
costs incurred in getting it there, it would seem that there 
is no question as to the soundness of this movement to 
bring the distributive process under devices of orderly 
control. But in proportion as success is achieved, costs 
reduced, losses eliminated, and the general level of return 
improved, twin difficulties for the voluntary organizations 
come as the children of this prosperity. 



RESULTS AND FUTURE USEFULNESS 363 

THE WEAKNESS OF INCOMPLETE CONTROL 

On the one hand, the co-operative is threatened with 
progressive loss of membership. The improved general 
condition of the market reacts favorably upon persons out- 
side the co-operative as well as those within, thus tempting 
the less group-minded to enjoy these benefits without any 
of the costs incidental to the support of the co-operative 
organization. This may result in dissatisfaction on the 
part of members of the co-operative and their desertion 
from its ranks in numbers sufficient to impair its work or 
cause its dissolution. Or it may result in such interference 
with the scheme of group marketing that the co-operative 
cannot show benefits commensurate with the burden im- 
posed on the members — which of course is proportionately 
greater as the number of non-participants increases. This 
chronic difficulty of co-operatives has resulted in the 
search on their part for some means by which, if a ma- 
jority of the group wish to launch a group undertaking, it 
can be made binding upon all. 

It was only after many years of legislative evolution 
that it finally became the declared public policy for 
practically all the states and for the federal government 
to permit producers to effect such group marketing with- 
out thereby running afoul of the prohibitions of the 
anti-trust laws. 7 The federal law, however, coupled this 
permission with a specific application of the "rule of 
reason," giving the Secretary of Agriculture powers of 
review of the actions taken by such group organizations 
and the making of a finding of fact as to whether they 
resulted in any unreasonable enhancement of prices. 8 
This, however, gave the co-operatives power only of 

7 E. G. Nourse, Legal Status of Agricultural Co-operation, Chaps. I-IX. 

8 The same, pp. 252-61. 



364 MARKETING AGREEMENTS 

securing such centralization as could be attained by the 
voluntary adhesion of members. Since this exposed them 
to the weakness discussed above, they sought to remedy 
it by various "clearing-house" arrangements. 

A "clearing house" is essentially a trade association of 
co-operative distributors (who sometimes are also pro- 
cessors) with non-co-operative distributors so as to effect 
a centralization of the whole marketing process or at least 
to enlarge the control of the commodity by bringing in the 
product of additional growers which was handled by non- 
co-operative distributors. We have had occasion to refer 
to such enterprises and to the fact that one case at least 
had the implicit sanction of federal authority (see pages 
99, 133). There was, however, a good deal of nervous- 
ness among those who embarked on such undertakings 
and a fear which kept others from taking this step even 
where they would have been glad to join in a movement 
toward grower co-ordination of market operations. 

This situation led to the pressure for inclusion of a 
provision for marketing agreements between distributors 
and processors (including co-operatives) in the Agricul- 
tural Adjustment Act. But the inability of trade organi- 
zations to command the support of all members of the 
trade, just as the co-operatives were unable to embrace 
all producers in their ranks, led to the addition of the 
licensing feature, now transformed into the "orders" sec- 
tion of the act. This gives rise to the attack on this 
section as being an improper "regimentation" of industry. 

As a first step in understanding the issue, we should re- 
call the nature of the controls imposed and the extent to 
which they go. (1) There is no control of production, 
although the methods of settlement included under milk 
licenses are distinctly designed to influence the compara- 



RESULTS AND FUTURE USEFULNESS 365 

tive profitableness of milk production under particular 
circumstances and this would probably have some reper- 
cussions on the total amount produced. (2) It does not 
require any producer to dispose of his product to or 
through a processor or distributor, co-operative or other- 
wise, different from the one of his own choice. (3) It does 
not require that distributors or processors dispose of their 
product in markets or through agencies other than the 
ones which they would normally employ. (4) It does 
prevent all or certain producers from disposing of product 
of certain qualities for which they might otherwise find a 
market which they regarded as sufficiently remunerative. 
Or it may prevent all producers from disposing of as much 
of their product as they might otherwise be able to find 
a market for. 

Assuming that the major price objectives of this manip- 
ulation of supplies were successfully accomplished, it 
would mean that producers as a whole would secure a 
better income under controlled marketing than under 
individual marketing. Certain individuals, however, 
would presumably receive less than their proportionate 
share of this gain, no gain, or even conceivably some net 
disadvantage. 

The issue which is thus raised is one of political science 
rather than of economics, namely ; shall we permit a gov- 
ernment agency thus to step in as the arbiter of economic 
fortunes and put the economic activities of the individual 
under the constraint of group organization on the grounds 
that the group as a whole will benefit from this govern- 
mental control of private action even though the relative 
or absolute position of certain individuals is prejudiced? 
The only way in which economic analysis could be used 
to aid in the solution of this problem would be in show- 



$66 MARKETING AGREEMENTS 

ing how this type of control afreets the development 
of the given branch of agriculture or, by enhancing the 
price of the product, tends to burden the economic 
system in general. In other words, we must admit that 
there is a restraint of individual freedom of action under 
licenses or orders and leave it to others to argue whether 
such restraint is harmful or improper according to politi- 
cal, ethical, or other criteria. 

THE DANGERS OF COMPLETE CONTROL 

This brings us to the second of the difficulties pointed 
out (page 362) as arising from the group marketing 
movement initiated by the co-operatives and carried much 
further by the agreement and license provisions of the 
Adjustment Act. This is the danger that the power to 
control supplies would be so used or misused as to result 
in long-run disadvantage to the industry itself. It is a well- 
known fact that not a few of the voluntary co-operatives 
have, at times when circumstances were favorable for 
price advancement, over-reached themselves, forced 
prices to ill-advisedly high levels, and given the industry 
an unwholesome boom that eventually led to their own 
downfall. 

In the words of H. R. Wellman: 

... It is becoming increasingly apparent that when any group has 
the power to control the price of the commodity it sells, it tends 
to raise the price too high. On the one hand, high prices tend to 
retard consumption, and, on the other hand, they tend to increase 
production, and the higher the price in relation to the prices of 
competing products, the more pronounced are these tendencies. 
This danger is not confined to voluntary programs, but may be 
equally serious, if not more serious, under marketing agreements 
and licenses, since the degree of control is greater. 9 

9 Some Economic Aspects of Marketing Agreements for Fruits and Vege- 
tables, paper presented at annual meeting of Western Farm Economic Associa- 
tion, Corvallis, Ore., Aug. 12-13, J 935- 



RESULTS AND FUTURE USEFULNESS 367 

Experience under the marketing adjustment phase of 
the AAA is too brief to appraise the results which will 
follow if this system is continued. We have already re- 
ferred to the divergence of opinion among informed per- 
sons as to whether the price enhancement effected under 
the cling peach agreement resulted in an unwholesome in- 
crease in the planting of peach trees, and to the fact that 
asparagus planting threatened to be overdone until prices 
of alternative crops rose sharply and checked asparagus 
acreage. The favorable prices for Florida celery obtained 
in the 1934-35 season occurred in a year when competition 
from other areas was abnormally low, and it still remains 
to be seen whether producers will by this experience be 
led to an unwarranted expansion of plantings next year. 

Unless the administrative agencies in charge of such 
agreements show the wisdom and courage necessary to 
keep prices down to a point which is not unduly stimula- 
tive, the effect of these so-called "adjustment" undertak- 
ings would be to stimulate spurts of activity which would 
unsettle rather than stabilize the industry. Progressive 
over-development would eventually produce conditions of 
oversupply and low prices which would lead to break- 
down of the control and conditions worse than those 
which led to initiating the undertaking in the first place. 
This danger is particularly subtle in the case of orchard 
products, where anywhere from 5 to 15 years may inter- 
vene between the planting of the trees and the period of 
full bearing. 

On the other hand, the danger of over-stimulation as a 
result of favorable prices is present even where there is 
no comprehensive organization for marketing purposes, 
and real estate agents, nurserymen, chambers of com- 
merce, and "boosters" of all varieties do not hesitate to 



368 MARKETING AGREEMENTS 

take full advantage of it in their own interest. Might 
controlled marketing be used as a safeguard against such 
forces ? If a substantial majority of the seasoned producers 
in a given line of agricultural production were to invoke the 
powers conferred on the Secretary of Agriculture under 
the "orders" provision of the amended act to inaug- 
urate a control program which would hold prices down 
at a time when they might otherwise be strongly ad- 
vanced, such an effort would have the effect of stabilizing 
the industry at a time when in the absence of a control 
device it might suffer from over-development. Whether 
successive secretaries of agriculture would, as such cir- 
cumstances arose, have within their department the tech- 
nical advice necessary to make wise decisions and the 
political fortitude to put them into effect, is a question 
which cannot be answered in advance, but on it the 
wisdom and practicability of the whole proposal must 
ultimately rest. 10 

THE PRESENT ISSUE 

What was said on page 358 in the partial summary with 
reference to fluid milk agreements and orders applies also 
to agreements and licenses in the general crops field. Two 
years of experience have demonstrated "that the results 
which can be accomplished through controlled marketing 
'under the centralized power of government' are much 
more narrowly circumscribed by economic limitations 
than many people supposed in the summer of 1933." It 
has likewise been demonstrated that a degree and type 
of control which are both feasible and effective in one field 
of agriculture and logically as applicable in a closely simi- 

10 See in this connection the provisions of the walnut agreement for the 
release of "reserve tonnage" at a time when it would tend to check the advance 
of market prices (p. 192). 



RESULTS AND FUTURE USEFULNESS 369 

lar type of production or in another area of the same in- 
dustry may be rendered utterly unworkable because of 
local sentiment or shortcomings of personnel. This 
leaves still undetermined the question whether, in meet- 
ing the distinctive hazards in these lines of production, 
the tri-partite coalition of producers, handlers, and gov- 
ernment can be made (a) permanently beneficial to these 
industries without (b) inflicting improper burdens on 
other parts of our economic system. 

The latter and broader question does not come within 
the scope of the present volume but will be deferred to 
a subsequent general appraisal of the whole adjustment 
scheme. On the former question, we have already indi- 
cated that the evidence afforded by experience thus far is 
inconclusive. The nature of the issue, which is submitted 
to the pragmatic test of time, however, is quite clear. 

On the one hand are those who would leave every pro- 
ducer, processor, and distributor free to seek what he con- 
ceives to be his own personal advantage in each market- 
ing situation as it develops from day to day and from 
season to season, believing that through flexibility and 
competitive freedom of each individual the soundest 
adjustment of the whole matter for each industry would 
work itself out. 

On the other hand are those who believe that the geo- 
graphical and technical conditions of the modern metro- 
politan milk market and the hazards of highly specialized 
commercial production of horticultural products remote 
from the areas in which they are consumed create 
risks so great that they can be effectively met only by 
developing agencies for the more comprehensive co-ordi- 
nation of individual efforts. They believe that the device 
provided in the amended Adjustment Act for centralizing 



370 MARKETING AGREEMENTS 

decisions in a scheme of commercial government in which 
producers and handlers legislate through a representative 
body subject to the veto of the Secretary of Agriculture 
will bring about a more successful guidance of these in- 
dustries in the long run. This is to conceive the market- 
ing agreement with the implementing device of Secre- 
tary's orders as being essentially an educational force for 
co-ordinating the thinking and action of individuals in 
homogeneous groups following agricultural pursuits. It 
is a device of considerable economic promise but by no 
means as yet brought to a state of perfection. Many years 
of patient experimentation and refinement would be re- 
quired to develop its full potentialities and at no time 
would its operations be better than the quality of the men 
who man it. 

It is evident in view of what was said on page 364 as to 
which decisions are and which are not delegated to this 
supervisory body, that marketing agreements and orders 
do not constitute a mandatory regimentation of the whole 
process of production and distribution. Instead they 
simply furnish legal sanction under which groups may 
delegate the settlement of certain major questions of mar- 
keting strategy to a novel type of legislative and executive 
agency. Under this scheme: 

1. A majority interest (defined in Section 8) 11 may de- 
cide that their industry is one having economic hazards 
which make it desirable to invoke the protective features 
of the act. They thereupon advise with Adjustment Ad- 
ministration officials in setting up the terms of the control 
plan, subject to the approval of the Secretary. 

2. If the conditions of the industry are such as to require 
it, this control may be made continuous in operation, as in 

11 Appendix C, p. 429. 



RESULTS AND FUTURE USEFULNESS 371 

fluid milk; or it may be made to apply to certain entire 
crop years of flush production or impaired demand, as 
with dried fruits, nuts, or canning crops, or only to meet 
emergencies within the crop year, as in the case of fresh 
fruits and vegetables. A representative body chosen from 
the industry, in consultation with the professional staff of 
the Adjustment Administration and on approval of the 
Secretary, decides whether or when the protective device 
shall be invoked. 

3. The industry representatives, with the concurrence 
of the Secretary pursuant to the advice of his staff, decide 
the specific conditions under which all members of the 
group will offer their product to the market and, under the 
provision of the adjustment plan, the manner in which 
this supply schedule will be adhered to throughout the 
group. 

The more thoughtful among the proponents of "con- 
trolled marketing" argue that as this system develops and 
matures, it will demonstrate its ability to arrive at sounder 
decisions than would be reached through uncoordinated 
action because it combines a maximum of free individual 
initiative and choice covering operative details for both 
producers and handlers with the necessary minimum of 
centralization on basic questions of marketing strategy. 
They point out also that the agency entrusted with these 
major decisions combines the intimate knowledge of pro- 
ducers and handlers as to the complex features affecting 
their individual businesses with the longer and broader 
point of view of a national agency entrusted with the re- 
sponsibility for advancing as far as possible the prosperity 
of all the rival areas of production and of all the inter- 
related branches of agriculture. Since the interests of the 
producer, the processor, and the distributor are by no 



372 MARKETING AGREEMENTS 

means identical and all of them may diverge more or less 
from other interests which must be within the concern of 
the Secretary of Agriculture, it is urged that this method 
of arriving at decisions involves a system of checks and 
balances which conduces to well-balanced decisions. 
Finally, the point is often made that since all the com- 
modities in this group have a highly competitive market 
and since control devices are applicable only at certain 
spots within the field, attempts to use control to derive 
monopoly advantage rather than to guard against peculiar 
and in the main intermittent hazards of the industry are 
remote. 

While the validity of this favorable view cannot be said 
to have been clearly established, the writer believes it is 
desirable that further experimentation with marketing 
agreements and orders as provided in the amended act 
be carried on to see what branches of agriculture they are 
technically applicable to and what possibilities this new 
development in our marketing institutions has for being 
used to the long-run advantage of farm producers. 
Whether devices calculated to bring this degree of pros- 
perity to agricultural groups are economically dangerous 
to other classes is a question which is left to the concluding 
volume in this series. 



APPENDIXES 



APPENDIX A 

MARKETING AGREEMENT FOR GROWERS AND SHIP- 
PERS OF CALIFORNIA FRESH DECIDUOUS TREE 
FRUITS EXCEPT APPLES 

ARTICLE I. PURPOSES 

The parties to this agreement are the contracting shippers (in- 
cluding associations of growers), the contracting growers of decidu- 
ous tree fruits, except apples, grown in the State of California, and 
the Secretary of Agriculture of the United States. 

Whereas, it is the declared policy of Congress as set forth in 
Section 2 of the Agricultural Adjustment Act, approved May 12, 
1933, as amended. 

( 1 ) To establish and maintain such balance between the produc- 
tion and consumption of agricultural commodities, and such mar- 
keting conditions therefor, as will re-establish prices to farmers at 
a level that will give agricultural commodities a purchasing power 
with respect to articles that farmers buy, equivalent to the pur- 
chasing power of agricultural commodities in the base period. The 
base period in the case of all agricultural commodities except tobacco 
shall be the pre-war period August 1909- July 1914. In the case of 
tobacco, the base period shall be the post-war period August 1919- 
July 1929. 

(2) To approach such equality of purchasing power by gradual 
correction of the present inequalities therein at as rapid a rate as is 
deemed feasible in view of the current consumptive demand in 
domestic and foreign markets. 

(3) To protect the consumers' interest by readjusting farm pro- 
duction at such a level as will not increase the percentage of the 
consumers' retail expeditures for agricultural commodities, or prod- 
ucts derived therefrom, which is returned to the farmer, above the 
percentage which was returned to the farmer in the pre-war period, 
August 1909-July 1 914. 

And— 

Whereas, pursuant to the Agricultural Adjustment Act, the 
parties hereto for the purpose of correcting conditions now obtain- 
ing in the handling of deciduous tree fruits, except apples, in 

375 



376 MARKETING AGREEMENTS 

California, and to effectuate the declared policy of the act, desire 
to enter into a marketing agreement under the provisions of Section 
8 (2) of the act; 
Now, therefore, the parties hereto agree as follows: 

ARTICLE II. DEFINITIONS 

Section i. Definition of terms. As used in this agreement: 

1. "Secretary" means the Secretary of Agriculture of the United 
States. 

2. "Act" means the Agricultural Adjustment Act, approved May 
12, 1933, as amended. 

3. "Person" means individual, partnership, corporation, associa- 
tion or any other business unit. 

4. "Fruit" means any or all deciduous tree fruit of any or all 
varieties grown in the State of California, except apples, and dis- 
tributed in fresh form. 

5. "Grower" means any person who* produces fruit, as owner or 
tenant, for sale or shipment in the current of or in competition with, 
or so as to burden, obstruct, or in any way affect interstate and/or 
foreign commerce. 

6. "Shipper" means any person engaged in selling, marketing, 
shipping, consigning, handling, and in any other way dealing in 
fruit from or within California in person or as or through an agent, 
broker or representative, employee or otherwise, in the current of 
or in competition with, or as to burden, obstruct, or in any way 
affect, interstate and/or foreign commerce. 

7. "Ship" means selling, marketing, shipping, consigning, hand- 
ling and in any other way dealing in fruit in the current of or in 
competition with, or so as to burden, obstruct, or in any way affect 
interstate and/or foreign commerce. 

8. "District" means any geographical area within the State of 
California as is hereinafter or hereunder delimited. 

9. "Concentration point" means any railroad center in the State 
of California designated by a commodity committee as a concen- 
tration point. 

10. "Books and records" means any books, records, accounts, 
contracts, documents, memoranda, papers, correspondence, or other 
data pertaining to the business of the person in question. 

11. "Subsidiary" means any person, of or over whom or which, 



DECIDUOUS FRUIT AGREEMENT 377 

a shipper or an affiliate of a shipper has, or several shippers col- 
lectively have, either directly or indirectly, actual or legal control 
whether by stock ownership or in any other manner. 

12. "Affiliate" means any person and/or any subsidiary thereof, 
who or which has, either directly or indirectly, actual or legal 
control of or over a shipper, whether by stock ownership or in any 
other manner. 

13. "Agreement" means the marketing agreement entered into 
by the parties hereto. 

14. "Variety" means any sub-species of fruit generally recognized 
by the trade, such as the Santa Rosa plum, Bing cherry, Royal apricot, 
Elberta peach and Bosc pear. 

ARTICLE III. CONTROL COMMITTEE 

Section i. Members. A control committee shall be established 
consisting of twelve shipper members and thirteen grower mem- 
bers who shall be selected in accordance with the provisions of this 
article and shall serve until February i of the year following the 
date of their respective selections and until their respective succes- 
sors are selected. The initial members and their alternates shall be 
those named in Section 2 of this article. Their respective successors 
(other than those selected to fill vacancies) shall be selected annually 
at least fifteen days prior to the termination of the term of office 
of their respective predecessors. No delay in the selection of any 
successor shall be deemed to invalidate any such selection. 

Sec. 2. Selection of members. 1. Twelve members and each of 
their respective successors shall be selected by shippers of fruit. 
Such initial shipper members and their alternates shall consist of 
the following persons: 

The respective successors of such initial shipper members and 
their alternates shall be selected in the following manner: 

(a) Any shipper or group of shippers shipping at least one-third 
of the total tonnage of fruit shipped during the preceding shipping 
season by all shippers shall be entitled to select four members and 
their alternates to the control committee. Such shipper or group 
of shippers shall be known as an elective body. The person or 
persons comprising the elective body shall cast their vote on the 



378 MARKETING AGREEMENTS 

basis of the quantity of fruit shipped by such person or persons. 
Voting shall be cumulative. The persons comprising the elective 
body shall not participate in more than one such body. 

(b) In the event the full shipper membership and their alternates 
of said control committee be not selected by elective bodies within 
fifteen days of the date of the expiration of the term of office of 
members of the control committee, as provided in Section i hereof 
the manager of the said control committee shall announce a time 
and place of an election meeting of all shippers of fruit who have 
not singly nor combined formed an elective body nor in any manner 
participated therein. At said meeting all such shippers shall select 
on the basis of one vote each all remaining unselected shipper mem- 
bers and their alternates to said control committee. No shipper 
who either singly or combined formed an elective body or partici- 
pated therein shall participate in or vote at such meeting. 

2. Thirteen members and each of their respective successors 
shall be growers of fruit. Such initial grower members shall con- 
sist of the following persons: 



The respective successors of such initial members shall be selected 
by the members of the respective commodity committees herein- 
after designated as follows: 

(a) Four members shall be selected by the Bartlett pear com- 
modity committee. 

(b) Two members shall be selected by the peach commodity 
committee. 

(c) Three members shall be selected by the plum commodity 
committee. 

(d) One member shall be selected by the apricot commodity 
committee. 

(e) One member shall be selected by the cherry commodity com- 
mittee. 

(f) Two members shall be selected by the winter pear com- 
modity committee. 

For the purposes of this section a member selected by such com- 
modity committee shall be an individual person who produces at 
least fifty-one per cent of the total fruit shipped by him. In the 
selection of such members of the control committee, each member 



DECIDUOUS FRUIT AGREEMENT 379 

of the respective commodity committees shall have but one vote. 

Sec. 3. Alternates. Alternates may be selected for each member 
of the control committee by the person, persons or group by whom 
or which, and in the same manner as, such member is selected. The 
alternates shall have power to act in the place and stead of such 
member (a) in his absence, and/or (b) in the event of a vacancy 
arising by reason of his removal, resignation, disqualification, or 
otherwise, for his unexpired term until a successor has been selected. 

Sec. 4. Vacancies. To fill any vacancy occasioned by the removal, 
resignation or disqualification or otherwise of any member or alter- 
nate of the control committee, a successor for his unexpired term 
shall be selected within fifteen days after such vacancy occurs, by 
the person, persons or group, and in the manner set forth in Section 
2 of this article. 

Sec. 5. Failure to select members. If any member, successor of 
such member or alternate is not selected within the applicable period 
specified in this article, the Secretary may select a person, with full 
power to act as such member, successor or alternate, to serve until 
such member, successor or alternate is selected. 

Sec. 6. Organization and quorum. 1. The control committee 
shall not perform any of its duties, or exercise any of the powers 
herein granted while there are more than seven vacancies in its 
membership. 

2. A majority of all members of the control committee shall 
constitute a quorum and any action of the control committee shall 
require the concurrence of the majority of all members present. 

Sec. 7. Certification of members. Upon the selection of any 
member or members of the control committee, the secretary of said 
control committee shall certify to the Secretary the name and address 
of each such member and of his alternate, if any, and the date or 
dates of their selection. The members and alternates, if any, so 
certified to the Secretary shall be deemed for all purposes to be the 
duly selected members and alternates of the control committee, sub- 
ject, however, to the rights of any interested party to protest such 
selection in accordance with the applicable administrative orders 
issued by the Secretary. 

Sec. 8. Removal and disapproval. The members of the control 
committee or any other committee created hereunder (including 
successors, alternates or persons selected by the Secretary), and any 



380 MARKETING AGREEMENTS 

agent or employee appointed or employed by the control committee 
or by any other committee, shall be subject to removal by the Secre- 
tary at any time. Each and every order, regulation, decision, deter- 
mination or other act of the control committee or of any other 
committee, shall be subject to the continuing right of the Secretary 
to disapprove of the same at any time, and, upon such disapproval, 
shall be deemed null and void except as to acts done prior to such 
disapproval and in reliance on or in compliance with such order, 
regulation, determination or other act of such committee. 

Sec. 9. Expenses of members. Members of the control committee 
shall serve without compensation but shall be entitled to expenses 
necessarily incurred in the performance of their duties hereunder. 

Sec. 10. Powers and duties. The powers and duties of the control 
committee shall include the following: 

1. To elect a chairman and, from time to time, such other officers 
as it may deem advisable, and to adopt rules and regulations for 
the performance of its duties under this agreement. 

2. To supervise the performance of this agreement and to act 
as intermediary between the Secretary and the shippers and the 
growers. 

3. To appoint a manager, who shall also act as secretary of the 
several commodity committees, and such other employees as it deems 
necessary and to determine the salaries and define the duties of 
such employees. 

4. To appoint and define the duties of additional committees or 
sub-committees to assist it in the performance of any of its duties 
and functions hereunder. 

5. To establish additional commodity committee or committees 
for fruit covered by this agreement, and for which no commodity 
committee is established by Article IV hereof. Such additional com- 
modity committee or committees shall be composed of seven mem- 
bers selected from districts designated by the control committee and 
shall have the powers and be subject to the duties of commodity 
committees expressly created hereunder, except that such additional 
commodity committee or committees shall not be entitled to rep- 
resentation on the control committee. 

6. To investigate suspected violations of this agreement and to 
hear and dispose of all questions, disputes, and complaints arising 
in connection with the performance of this agreement. If a mem- 



DECIDUOUS FRUIT AGREEMENT 381 

ber of the control committee shall be an interested party to any 
complaint or dispute or a representative of such an interested party, 
he shall, for the purpose of the consideration of such dispute or com- 
plaint, be disqualified as a member of the control committee. Such 
disqualification, however, shall not be deemed to create a vacancy 
in the control committee within the prohibition of Section 6 of 
this article. 

7. To negotiate and confer with representatives of shippers and/ 
or growers of fruit produced in other states and areas, with respect 
to the formulation or operation of a marketing agreement pro- 
viding for the proration of shipments among the several areas in 
the United States where such fruit is grown. 

8. To disapprove by affirmative vote of two-thirds of its total 
membership any action of any commodity committee. In deter- 
mining such two-thirds vote any fraction shall be equivalent to 
one vote. 

9. To re-define from time to time the districts into which the 
State of California has been delimited by this agreement; to change 
the number of members of which any commodity committee is 
composed and the districts from which such members are to be 
selected: Provided, however, That if any of these changes are 
made so far as practicable each member shall represent an equal 
quantity of the particular fruit shipped during the preceding 
three years. 

10. To handle all financial matters, including the collection of 
assessments and the making of disbursements incurred in con- 
nection with the administration of this agreement by all of the 
committees established hereunder. 

11. To establish a sales managers' committee, which shall con- 
sist of seven members, who shall be selected by the shipper members 
of the control committee, at least one of whom shall represent 
a co-operative marketing association, which said sales managers' 
committee shall meet and advise with the commodity committee 
at all meetings which may pertain (i) to limitation of shipments 
as set forth in Article VI, (2) regulation of grades and sizes as set 
forth in Article VII, and/or (3) regulation of railroad shipments 
as set forth in Article VIII. 

12. With the approval of the Secretary to incorporate as a non- 
profit organization, and, as so incorporated, to exercise all the duties 



382 MARKETING AGREEMENTS 

and possess all the powers specified in this agreement: Provided, 
That such corporation shall not exercise powers expressly or by 
implication prohibited hereunder and that it shall be subject to all 
the duties and obligations imposed upon the control committee 
hereunder; and, Provided, further, That the stockholders and direc- 
tors of any such corporation shall be members selected by the respec- 
tive groups and persons as provided by this agreement. 

13. To perform the functions and exercise the powers with 
respect to the method of the selection of members of the com- 
modity committees set out in Section 4 of Article IV. 

Sec. 11. Disqualification. No shipper shall be entitled to partici- 
pate in the selection of members of the control committee in ac- 
cordance with the terms of this article if he has failed to pay his 
contribution pursuant to Article V of this agreement; or pursuant 
to any license supplementary hereto, issued pursuant to Section 8(3) 
of the act. 

Sec. 12. Reports, boo\s and records. 1. The control committee 
shall, upon the request of the Secretary, furnish him such informa- 
tion as he may request, and all the books and records of the control 
committee shall, at any time, be subject to the examination of the 
Secretary. 

2. The control committee shall keep books and records which 
will clearly reflect all its transactions. 

3. The control committee shall promptly submit to the Secretary 
certified copies of minutes of its meetings. 

4. Upon the termination of this agreement, the foregoing pro- 
visions shall continue to apply to the members of the control com- 
mittee, functioning at the time of such termination, until such 
members have been discharged in accordance with the provisions of 
Paragraph 3 of Section 13. 

Sec. 13. Funds. All funds received by the control committee 
pursuant to any provision of this agreement shall be used solely 
for the purpose therein specified, and shall be accounted for in the 
following manner: 

1. During the duration of this agreement, the Secretary may re- 
quire the control committee or any other committee created here- 
under and their members to account for all receipts and disburse- 
ments and/or to deliver all funds on hand, together with all books 
and records of the committee, at such time or times, in such manner 



DECIDUOUS FRUIT AGREEMENT 383 

and to such person, as the Secretary shall direct, and to execute such 
assignments or other instruments as may be necessary or appropriate 
to vest in such person full title to all of the funds and/or claims 
vested in the committee pursuant to this agreement. 

2. Upon the expiration of the term of office of any member of 
the control committee or any other committee created hereunder, 
such member shall account for all receipts and disbursements and 
deliver all funds in his hands, together with all books and records 
in his possession, to his successor in office, and shall execute such 
assignments and other instruments as may be necessary or appro- 
priate to vest in such successor full title to all of the funds and/or 
claims vested in such member pursuant to this agreement and/or 
license issued supplementary hereto pursuant to the act. 

3. Upon the termination of this agreement, and license issued 
supplementary hereto pursuant to Section 8 (3) of the act, the 
members of the control committee then functioning shall continue 
as joint trustees for the purpose of this agreement and such license 
of all funds then in the possession or under the control of the control 
committee, including claims for any funds which are unpaid at the 
time of such termination. Said trustees (a) shall continue in such 
capacity until discharged by the Secretary, (b) shall from time to 
time account for all receipts and disbursements and/or deliver all 
funds on hand, together with all books and records of the control 
committee and the joint trustees, to such person as the Secretary 
shall direct, and (c) shall, upon the request of the Secretary, execute 
such assignments or other instruments as may be necessary or ap- 
propriate to vest in such person full title to all of the funds and/or 
claims vested in the committee pursuant to this agreement and/or 
pursuant to any license issued supplementary hereto. Any funds 
collected for expenses pursuant to Article V and held by such joint 
trustees or such person over and above amounts necessary to meet 
outstanding obligations and the expenses necessarily incurred by 
the joint trustees or such other person in the performance of their 
duties hereunder, shall, as soon as practicable after the termination 
of this agreement and of any license issued supplementary hereto 
pursuant to Section 8 (3) of the act, be returned to the shippers 
pro rata in proportion to their contributions made pursuant to this 
agreement and/or pursuant to any license issued supplementary 
hereto. 



384 MARKETING AGREEMENTS 

4. Any person to whom funds and/or claims have been delivered 
by the control committee or its members, shall be subject to the 
same obligations and duties with respect to said funds as are here- 
inabove imposed upon the members of said committee. 

Sec. 14. Collection of funds. The control committee is authorized 
and empowered, subject to the prior approval of the Secretary, to 
institute legal proceedings in the name of its individual members 
as a committee and to take such other steps as may be necessary 
to collect or enforce the payment of funds from persons liable 
therefor, pursuant to the provisions of this agreement. Upon the 
termination of this agreement and license issued supplementary 
hereto pursuant to Section 8 (3) of the act, the foregoing power 
shall (unless otherwise provided in the notice of termination) 
continue in the members of the control committee as trustees pur- 
suant to Section 13 of this article with respect to any funds unpaid 
at the same time of such termination: Provided, That such power 
may at any time be terminated by the Secretary and vested in such 
other person as the Secretary may direct. Nothing herein contained 
shall be construed to be in derogation or modification of the rights 
of the Secretary at any time to institute legal proceedings or to take 
such other steps as may be necessary to collect or enforce the payment 
of any such funds. 

ARTICLE IV. COMMODITY COMMITTEE 

Section i. Members. Commodity committees shall be established, 
each consisting of seven members, who shall be selected in ac- 
cordance with the provisions of this article, and who shall serve 
until January 1 of the year, following the date of their respective 
selections, and until their respective successors are selected. The 
initial members shall be those named in Section 4 of this article. 
Their respective successors (other than those selected to fill vacan- 
cies) shall be selected annually at least fifteen days prior to the 
termination of the term of office of their respective predecessors. 
No delay in the selection of any member or successor shall be deemed 
to invalidate any such selection. 

Sec. 2. Number of commodity committees. A commodity com- 
mittee shall be established for each of the following fruits: 

Bartlett pears, winter pears, peaches, cherries, plums, apricots, 
and for such other fruit as the control committee may designate 



DECIDUOUS FRUIT AGREEMENT 385 

pursuant to Paragraph 5 of Section 10 of Article III of this agree- 
ment. 

Sec. 3. Definitions of districts. For the purpose of selection of 
commodity committees, the area covered by this agreement is here- 
by delimited into the following districts: 



Sec. 4. Selection of members. 1. Selection of members of com- 
modity committees shall be according to districts as follows: 

(a) Winter pear commodity committee: 

Five members from District No. 8. 
One member from District No. 4. 

One member from all of the areas covered by this 
agreement not included in Districts 8 and 4. 

[Selection of Bartlett pear, peach, plum, apricot, and cherry 

commodity committees similarly provided.] 
2. The initial members of each commodity committee shall con- 
sist of the following persons: 

The respective successors of such initial members of each such 
commodity committee shall be growers selected at a general election 
at which all growers of the fruit involved shall be entitled to vote. 
At each such election each grower shall be entitled to cast but one 
vote on behalf of himself, agents, partners, affiliates, subsidiaries 
and representatives. Nominations and elections of commodity com- 
mittee members shall be supervised by the control committee, which 
from time to time shall prescribe therefor such procedure as shall 
be fair to all concerned. 

Sec. 5. Alternates. Each group selecting a member of a com- 
modity committee may, in the same manner, at any time select an 
alternate to act in the place and stead of such member in his 
absence and/or in the event of his removal, resignation or dis- 
qualification, until a successor for his unexpired term has been 
selected. 

Sec. 6. Vacancies. To fill any vacancy occasioned by the removal, 
resignation, disqualification, or otherwise, of any member of the 
commodity committee, a successor for his unexpired term shall be 



386 MARKETING AGREEMENTS 

selected within fifteen days after such vacancy occurs, by the person, 
persons or group, and in the manner indicated in Section 4 of this 
article. 

Sec. 7. Failure to select members. If any successor shall not be 
selected within the applicable period specified in this article, then 
the Secretary may select a person with full power to act as a 
member and to serve until such successor is selected. 

Sec. 8. Organization. A commodity committee shall not perform 
any of its duties or exercise any of the powers herein granted while 
there are more than two vacancies in its membership. 

Sec. 9. Certification of members. Upon the selection of any 
member or members of a commodity committee, the secretary of 
said commodity committee shall certify to the Secretary the name 
and address of each such member, and of his alternate, if any, 
and the date or dates of their selection. The members and alternates, 
if any, so certified to the Secretary shall be deemed for all purposes 
to be the duly selected members or alternates of such commodity 
committee, subject, however, to the right of any interested party to 
protest such selection in accordance with the applicable adminis- 
trative orders issued by the Secretary. 

Sec. 10. Removal and disapproval. The members of a com- 
modity committee or of any other committee created hereunder 
(including successors, alternates, or persons selected by the Secre- 
tary) shall be subject to removal by the Secretary at any time. 
Each and every order, regulation, decision, determination or other 
act of a commodity committee, or of any other committee, shall be 
subject to the continuing right of the Secretary to disapprove of the 
same at any time, and up«n such disapproval, shall be deemed 
null and void except as to acts done prior to such disapproval and 
in reliance on or in compliance with such order, regulation, deter- 
mination, or other act of such committee. 

Sec 11. Expenses of members. Members of a commodity com- 
mittee shall serve without compensation, but shall be entitled to 
such expenses as are necessarily incurred in the performance of their 
duties hereunder and as are approved by the control committee. 

Sec. 12. Powdrs and duties. The powers and duties of a com- 
modity committee shall include the following: 

1. To elect such officers as it may deem advisable, and to adopt 



DECIDUOUS FRUIT AGREEMENT 387 

rules and regulations for the performance of its functions under 
this agreement. 

2. To select by an affirmative vote of two-thirds of its member- 
ship the grower members of the control committee pursuant to 
Section 2 of Article III of this agreement. 

3. To submit to the control committee for the approval of said 
committee a budget of its expenses. 

4. With respect to the fruit under its jurisdiction, to establish in 
each district defined in Section 3 hereof growers' advisory com- 
mittees to be composed of growers of said districts which said com- 
mittees shall consult and advise with the commodity committee, 
and to establish other committees to aid it in the performance of 
its duties hereunder. 

5. With respect to the fruit under its jurisdiction, to institute a 
limitation of shipments pursuant to Article VI and/or a regulation 
of grades or sizes of fruit shipped pursuant to Article VII and/or 
a regulation of carload shipments pursuant to Article VIII. 

6. To furnish to the control committee a record of the minutes 
of its meetings. 

7. To keep books and records which will clearly reflect all its 
transactions. 

8. To furnish the Secretary, upon his request, such information 
as he may call for, and all the books and records of any com- 
modity committee shall, at any time, be subject to the examination 
of the Secretary. 

9. With respect to the fruit under its jurisdiction, to possess the 
powers and exercise the duties set forth in this agreement. 

ARTICLE V. EXPENSES 

Section i. Expenses. To carry out the provisions of this agree- 
ment and of any license supplementary thereto, issued pursuant to 
Section 8 (3) of the act, the control committee is authorized and 
directed: 

1. To incur and/or to authorize any other committee to incur 
such reasonable obligations as may be necessary and proper, and to 
meet such obligations out of funds raised as herein provided; 

2. To submit to the Secretary for his approval, subject to such 
notice and opportunity for hearing as the Secretary by adminis- 



388 MARKETING AGREEMENTS 

trative order or otherwise, may prescribe (a) an itemized budget 
of its estimated expenses including the expenses of the commodity 
committees for the foregoing purposes, and (b) an equitable basis 
upon which the funds necessary to support such budget shall be 
contributed by the shippers. 

Sec. 2. Contributions. Upon the approval by the Secretary of 
such budget, each of the shippers agree to contribute to the control 
committee his share of the funds to be raised by it, in accordance 
with the basis of contribution submitted to and approved by the 
Secretary pursuant to Paragraph 2 of Section 1 of this article. 

ARTICLE VI. LIMITATION OF SHIPMENTS 

Section i. Purposes. In order to increase returns to growers by 
adjusting the supply of fruit in view of market demands, each 
commodity committee may, from time to time, institute limitation 
of shipments of fruit of any variety or varieties under its jurisdiction 
as hereinafter provided. 

Sec. 2. Definitions. For the purposes of this article "limitation 
period" means any period of time for which a commodity com- 
mittee institutes a limitation of shipments; "fruit" means any 
quantity of fruit of any variety or varieties as defined in Article II 
of this agreement; "cold storage" means the retention of fruit in 
refrigeration storage exclusive of refrigerator cars, trucks or vessels, 
for a period of time longer than five calendar days; "available and 
intended for shipment" means the quantity of such fruit which 
(a) meets the requirements of Sections 791, 794, 803, 804, 805 
and 806 of the agricultural code of the State of California, (b) con- 
forms to the grade and/or size permitted to be shipped under 
Article VII hereof, (c) is ready or to be ready for shipment, and 
(d) growers or shippers intend to ship during the limitation 
period: Provided, That fruit in cold storage in the State of California 
shall not be included as available and intended for shipment unless 
(a) the quantity of such fruit not in cold storage and available for 
shipment is less than the quantity which the commodity committee 
deems advisable to be shipped during a limitation period, and (b) 
the shipper or grower handling such fruit files written notice with 
the commodity committee that he intends to ship such fruit during 
such limitation period. 

Sec. 3. Method of limitation. In the event a commodity com- 



DECIDUOUS FRUIT AGREEMENT 389 

mittee proposes to institute limitation of shipments, it shall deter- 
mine (a) the limitation period, (b) the total quantity of fruit advis- 
able to be shipped during the limitation period, and (c) the quan- 
tity of fruit available and intended to be shipped during the limita- 
tion period. 

1. In determining the limitation period and the total quantity of 
fruit advisable to be shipped in such period, the commodity com- 
mittee shall consider pertinent factors which in the opinion of the 
commodity committee may affect the problems as to the quantity 
of fruit advisable to be shipped, such as (a) current market prices, 
(b) supply on hand at the consuming markets, (c) probable sup- 
plies from competitive areas, (d) effect upon prices by supply in 
the past, (e) weather conditions in producing areas as affecting 
maturity and quantity of fruit, (f) probable demand in the con- 
sumers' area. 

2. Each shipper who intends to ship any quantity of fruit during 
such limitation period shall report to the commodity committee, at 
such time and in such manner as said committee shall prescribe, 
the quantity of fruit available and intended for shipment in such 
limitation period which he has written authority from the owner 
or grower thereof to handle or to which he has legal title, together 
with the name of each such owner or grower and the quantity of 
fruit he is authorized to handle for such owner or grower and 
intends to ship during such limitation period. 

3. Any grower having fruit available and intended for shipment 
during the limitation period which no shipper has authority to 
ship may report to the commodity committee the quantity which 
he has available and intended for shipment in such limitation 
period, at the same time and in the same manner as it prescribed 
for reports by shippers in Paragraph 2 of this section. 

4. The commodity committee may check the accuracy of the 
report of any shipper or any grower and in so doing may among 
other things consider the records of production of the grower for 
previous years, and may revise on the basis of such check the quan- 
tity reported as available and intended for shipment by such shipper 
or grower. All reports by shippers or by growers to the commodity 
committee shall be substantiated or verified in such manner as the 
commodity committee may prescribe. 

5. From the reports made pursuant to Paragraphs 2 and 3 of 



390 MARKETING AGREEMENTS 

this section and as the same may be revised pursuant to Paragraph 4 
of this section, and by estimating fruit believed not reported pur- 
suant to Paragraphs 2 and 3 of this section, the commodity com- 
mittee shall determine the total quantity of fruit which is available 
and intended for shipment during the limitation period. 

6. If the total quantity of fruit available or that may become 
available and intended for shipment exceeds the quantity deemed 
advisable to be shipped as determined pursuant to Paragraph 1 of 
this section, the commodity committee, by giving at least thirty-six 
hours' prior notice thereof to growers, shippers, and other interested 
parties by publication in a newspaper or newspapers of general 
circulation in the area or areas where such fruit is produced or 
from which it is shipped, or by such other means as are reasonably 
calculated to bring this information to their attention, may institute 
a limitation of shipments. 

7. In the event fruit in cold storage is included as available fruit, 
in accordance with the provisions of Section 2 of this article limita- 
tions of shipments pursuant to this article shall not apply to avail- 
able fruit not in cold storage but shall be applicable only to the 
fruit in cold storage intended to be shipped as reported pursuant 
to the provisions of said Section 2. 

Sec. 4. Allotments to shippers and growers. In the event of the 
institution of a limitation of shipments, the commodity committee 
shall allot to each shipper reporting fruit available and intended for 
shipment, and to each grower who made no provision to have his 
fruit shipped by a shipper, the quantity which may be shipped by 
each such shipper and each such grower during said limitation 
period. Such proportionate share shall be determined by applying 
to the quantity available and intended for shipment by each such 
shipper or grower, as determined by the commodity committee, 
the percentage which the total quantity deemed advisable to be 
shipped is of the total quantity available and intended for shipment. 

Sec. 5. Division of shippers' allotments among growers. During 
the limitation period each shipper shall abide by the allotment 
made to him pursuant to this agreement and/or any license supple- 
mentary thereto issued by the Secretary pursuant to Section 8 (3) 
of this act, and during such period each shipper shall, in so far as 
reasonably possible, divide his allotment among the growers for 
whom he had reported and from whom he accepts such fruit, by 



DECIDUOUS FRUIT AGREEMENT 391 

allotting to each such grower a quantity which shall be the same 
percentage of the total quantity allotted to such shipper as the total 
quantity available and intended for shipment by each such grower 
is of the total quantity available and intended for shipment by such 
shipper, as determined pursuant to this article. No shipper shall 
ship any quantity of said fruit during a limitation period which 
was not reported to the commodity committee in accordance with 
either Paragraphs 2 or 3 of Section 3 of this article. 

Sec. 6. Over and under shipments. A shipper shipping in excess 
of his allotment during any limitation period shall be deemed to be 
violating this agreement unless the commodity committee shall 
permit him so to do. Such permission shall be given only on con- 
dition that double such excess shall be deducted from such shipper's 
allotment for the next succeeding limitation period. Any shipper 
shipping less than his allotment in any limitation period, may, with 
the permission of the commodity committee, add the amount of 
such undershipment to his allotment for the next succeeding limita- 
tion period, and only then if the next succeeding limitation period 
is consecutive without any intervening period during which no 
limitation is in effect. 

Sec. 7. Assignment of growers' allotments. Any allotment made 
to a grower pursuant to this agreement, or any part thereof, may be 
assigned or transferred in writing to a shipper. If a shipper to 
whom the allotment has been transferred or assigned shall submit 
evidence to the commodity committee satisfactorily showing that 
such allotment, or any part thereof, has been assigned, or transferred 
to him and that he has v/ritten authority to ship the quantity of 
fruit represented by such allotment or part thereof, the shipment 
of such quantity by such shipper shall not be deemed an excess 
shipment hereunder. 

Sec. 8. Assignment of shippers' allotments. Any shipper may, 
with the permission of the commodity committee, assign or trans- 
fer in writing all, or any part, of his* allotment for any limitation 
period to any other shipper or shippers, and shipment by such other 
shipper or shippers within the limits of such assignment or transfer 
shall not be deemed an excess shipment. 

Sec. 9. Shipments for charity or for by-products. Nothing in 
this article contained shall be construed to authorize any limitation 
on the right to ship fruit in any amount for canning, freezing, con- 



392 MARKETING AGREEMENTS 

version into by-products, or for charitable or unemployment relief 
purposes: Provided, however, That the commodity committee may 
from time to time prescribe proper safeguards to prevent the fruit 
shipped for such purposes from being reintroduced into commercial 
channels as fresh fruit. 

Sec. 10. Export shipments. Upon presentation of satisfactory 
documentary proof that fruit, other than pears, is to be exported 
to destinations exclusive of the continent of North America upon 
an outright sale basis, the appropriate commodity committee shall 
exempt such fruit from the operation of this article. 

Sec. ii. Reports to Secretary. The Secretary shall be immediately 
notified of any order issued under this article. Any order of the 
commodity committee adopted pursuant to the provisions of this 
article shall be subject to the continuing right of the Secretary to 
disapprove of the same at any time, and any such order may at any 
time be cancelled or modified in any way by the Secretary. 

ARTICLE VII. REGULATIONS OF GRADES AND SIZES 

Section i. Purpose of regulation. In order to increase returns to 
growers by adjusting the supply and quality of fruit in view of 
market demands, if any ccmmodity committee shall deem it neces- 
sary to limit the grades and/or sizes of designated varieties of fruit 
which may be shipped from any district or districts during a given 
period, it may order that only specified grades and/or sizes or a 
certain portion of such grades and/or sizes of the designated 
varieties of fruit may be shipped from such district or districts 
during such period. 

Sec. 2. Method and manner of regulation, i. In the event any 
commodity committee regulates the shipment of any variety or 
varieties of fruit in accordance with this article, thereupon when- 
ever the commodity committee shall find that one-half of the 
estimated crop of such variety or varieties of fruit in any district 
or districts has been shipped, it shall, or at any time before one-half 
of the estimated crop of such variety or varieties of fruit in any 
district or districts has been shipped it may, determine and announce 
the percentages of grade and/or sizes of a given variety of fruit 
which are permitted to be shipped are of the total crop of that 
variety in such district or districts, and at the same time shall 
announce the procedure by which special certificates will be issued 
to growers as set forth in Section 3 of this article. 



DECIDUOUS FRUIT AGREEMENT 393 

2. Orders issued pursuant hereto and announcements required to 
be made hereunder shall be announced by the publication in a news- 
paper or newspapers of general circulation to be selected by such 
commodity committee in the area where such fruit is produced and/ 
or shipped or by such other or additional means as are reasonably 
calculated to bring such information to the attention of growers, 
shippers, and other interested parties. No order shall become ef- 
fective sooner than twenty-four hours after notice thereof has been 
released, except that any order pertaining to the issuance of special 
certificates as provided in Paragraph 1 of this section shall become 
effective immediately upon the release of the announcement of such 
order. 

Sec. 3. Exemptions. Upon application by any grower and sub- 
mission of proof by him that by reason of such regulation he is 
unable to ship or have shipped for him as large a portion of the 
fruit grown by him and covered by such order as the percentage 
which the commodity committee permits to be shipped, the com- 
modity committee shall issue to such grower a special certificate 
permitting him to ship or have shipped for him to a shipper a 
quantity of fruit equivalent to such difference. 

Sec. 4. Shipments in violation of regulations. No person shall 
ship fruit in violation of this order except fruit shipped pursuant 
to Section 9 of Article VI and pursuant to special certificates issued 
as provided in Section 3 hereof. If the commodity committee insti- 
tutes an investigation of a suspected violation of an order issued 
pursuant to Section 1 it may require the shipper to substantiate the 
grade and/or size of the fruit involved by a federal-state inspection 
certificate. 

Sec. 5. Export shipments. Upon presentation of satisfactory docu- 
mentary proof that fruit, other than pears, is to be exported to des- 
tinations exclusive of the continent of North America upon an out- 
right sale basis, the appropriate commodity committee shall exempt 
such fruit from the operation of this article. 

Sec. 6. Inspection certificates. In the event an order is issued 
pursuant to this article, the commodity committee may require 
shippers to submit federal-state inspection certificates setting out 
the sizes and grades of fruits. 

Sec 7. Reports to Secretary. The Secretary shall be immediately 
notified of any order issued under this article. Any order of the 
commodity committee adopted pursuant to the provisions of this 



394 MARKETING AGREEMENTS 

article shall be subject to the continuing right of the Secretary to 
disapprove of the same at any time, and any such order may at any 
time be cancelled or modified in any way by the Secretary. 

ARTICLE VIII. REGULATION OF RAILROAD SHIPMENTS 

Section i. Purposes. In order to achieve an orderly flow of fruit 
to market, any commodity committee may, from time to time, issue 
an order regulating the carlot movement of fruit of any variety or 
varieties during any specified period from designated concentration 
points: Provided, however, That such order shall not be so issued 
unless the shipment of fruit covered by such order is being limited 
pursuant to Article VI or Article VII or unless the commodity com- 
mittee determines at the date of the issuance of such order that the 
quantity of fruit covered thereby which is available and intended 
to be shipped during the season does not exceed the quantity of 
such fruit which it deems advisable to be shipped during such 
season; it being the purpose of this article to achieve an orderly 
day-to-day movement of fruit and not to limit the total shipments 
of fruit during the season or prevent the final shipment of any car 
from any concentration point. Such order shall state the determined 
number of carloads of such fruit expected to be shipped during the 
season and the determined number of carloads of such fruit deemed 
advisable for shipment during the season. 

Sec. 2. Limitation upon time cars held. At the time of issuing 
any order pursuant to Section i of this article, the commodity com- 
mittee shall announce the greatest number of days which any car- 
load of fruit may be kept in any concentration point: Provided, 
however, That no carload of fruit may be held in such concentration 
points for more than four days. 

Sec. 3. Issuance of orders. In the event a commodity committee, 
pursuant to Section 1 of this article, determines that the number of 
carloads of fruit of any variety or varieties expected to be shipped 
during any period of time from any or all concentration points 
designated by it exceeds the number of carloads of such fruit deemed 
advisable to be shipped, the commodity committee may issue an 
order limiting the number of carloads of such fruit that may be 
shipped from all such concentration points during such period. 
Such order shall state the determined number of carloads of such 
fruit expected to be shipped during the period and the determined 



DECIDUOUS FRUIT AGREEMENT 395 

number of carloads of such fruit deemed advisable for shipment 
during such period. 

Sec. 4. Order of shipments. In the event an order is issued by 
the commodity committee pursuant to this article, the first carload 
of fruit covered by the order arriving at any concentration point 
shall be the first to be permitted to be shipped from all concentration 
points until the permissible number of carloads has been released. 
For this purpose the time of arrival of each such carload shall be 
either (a) the actual time of its arrival if such carload is not pre- 
cooled at said concentration point, or (b) twenty-four hours after 
the arrival of said carload, if such carload is precooled at such con- 
centration point. 

Sec. 5. Exceptions. Fruit shipped in the following manner shall 
not be subject to regulation under this article: 

1. If such fruit is destined for shipment to a foreign country 
exclusive of the continent of North America and proof thereof is 
submitted to the commodity committee; 

2. If a carload contains less than one-half by billing weight of 
fruit covered by an order issued pursuant to this article; 

3. If fruit is shipped pursuant to Section 9 of Article VI. 

Sec. 6. Change in priority. Whenever any shipper has one or 
more carloads of fruit covered by an order issued pursuant to 
Section 2 of this article at a concentration point or points which 
have priority and hence at a given time may be shipped as provided 
in Section 4 of this article, and also has other carloads of such fruit 
at the same or other concentration points which do not have such 
priority, such shipper may designate the carload or carloads which 
are to have priority of shipment. 

Sec 7. Water shipments. Fruit shipped through concentration 
points destined to Pacific Coast ports for reshipment by water be- 
tween points located in the continental United States shall not be 
subject to detention at such concentration points. During the period 
in which an order issued pursuant to this article is in effect, any 
quantity of fruit which a shipper ships by a water carrier between 
points located in the continental United States shall nine days prior 
to the date such shipment is expected to arrive at the port of 
destination, be deducted from the quantity of such fruit such 
shipper has available for shipment at any rail concentration point. 
Such shipper shall have a period of seventy-two hours during which 



396 MARKETING AGREEMENTS 

he may apply such deductions to such carloads which he has avail- 
able for shipment as he designates. Such shipper shall make such 
deductions from the fruit originating from the district which pro- 
duced fruit originally shipped by such water carrier; but upon his 
application and proof to the commodity committee that the fruit 
from such district is not available, it may allow him to deduct such 
quantity of fruit from another district or districts. 

Sec. 8. Order prohibiting shipments of Bartlett pears, i. If the 
total number of carloads of Bartlett pears arriving at all said con- 
centration points exceeds the advisable number of carloads to be 
shipped, as determined pursuant to Section 3 of this article, the 
commodity committee may, depending on the extent of such excess 
and upon affirmative vote of at least five members of said com- 
modity committee, and subject to disapproval of the Secretary, issue 
an order prohibiting shippers during a period not to succeed forty- 
eight hours and not less than four days between the last day of one 
period and the first of another from shipping Bartlett pears to any 
or all concentration points. 

2. For a period of forty-eight hours succeeding the termination 
of any period during which shipments are prohibited, no shipper 
shall ship Bartlett pears in excess of the quantity of such fruit 
such shipper shipped during a period of forty-eight hours prior 
to such period. 

3. Upon application and satisfactory proof by a grower or shipper 
showing that because of such prohibition of shipments during the 
period in which shipments are prohibited or during the forty-eight 
hour period in which shipments are being limited following such 
period in which shipments are prohibited any or all of his Bartlett 
pears available and intended for shipment during such prohibition 
period and such succeeding forty-eight hour limitation period will 
become overripe and consequently unmarketable the commodity 
committee may issue such grower or shipper a certificate exempting 
him from such order. 

4. Orders issued pursuant to this section and announcements 
required to be made hereunder shall be published in a newspaper 
or newspapers of general circulation to be selected by such com- 
modity committee in the area where such fruit is produced and/or 
shipped or by such other or additional means as are reasonably 
calculated to bring such information to the attention of growers, 



DECIDUOUS FRUIT AGREEMENT 397 

shippers and other interested parties. No order shall become ef- 
fective sooner than twenty-four hours after notice thereof has been 
released, except that any order pertaining to the issuance of special 
certificates as provided in Paragraph 3 of this section shall become 
effective immediately upon the release of the announcement of 
such order. 

5. The provisions of this section shall be applicable only to 
Bartlett pears. 

Sec. 9. Stop-orders. Upon order of the commodity committee 
each shipper upon shipping a carload of fruit covered by such 
order shall file with the carrier for each such carload a stop-order, 
directing the carrier to stop such carload at any concentration point 
until an order of release is given by the commodity committee. 

Sec. 10. Distribution of shipments. In the event any order is 
issued pursuant to Section 3 and Section 8 hereof, each shipper 
shall in so far as practically possible ship fruit for each grower 
whose fruit he handles in proportion to the supply he has in his 
possession and handles for all growers. 

Sec. 11. Rights of Secretary. The Secretary shall be immediately 
notified of any order issued under this article. Any order of the 
commodity committee adopted pursuant to the provisions of this 
article shall be subject to the continuing right of the Secretary to 
disapprove of the same at any time, and any such order may at 
any time be cancelled or modified in any way by the Secretary. 

ARTICLE IX. SERVICE CHARGES AND DEDUCTIONS 

Section i. Charges. No shipper marketing deciduous fruit on 
consignment for any grower shall make charges for marketing 
such fruit which shall exceed 7 per cent of the gross delivered price 
or 10 per cent of the net price f. o. b. California, provided that on 
sales made outside of the continent of North America charges for 
foreign brokerage may be deducted in addition to the charges 
specified in this paragraph. 

i 

ARTICLE X. REPORTS, BOOKS AND RECORDS 

Section i. Reports. The shippers shall severally, from time to 
time, upon the request of the Secretary, furnish him with such 
information as he may request, in a manner prescribed by him, 
and/or in accordance with forms of reports to be supplied by him, 



398 MARKETING AGREEMENTS 

for the purposes of (a) assisting the Secretary in the furtherance 
of his powers and duties with respect to this agreement, and/or 
(b) enabling the Secretary to ascertain and determine the extent 
to which the declared policy of the act and the purposes of this 
agreement are being effectuated; such reports to be verified under 
oath. The Secretary's determination as to the necessity of and 
justification for the making of such reports, and the information 
called for thereby shall be final and conclusive. 

Sec. 2. Examination of boo\s and records. The shippers also 
severally agree that, for the same purposes, and/or to enable the 
Secretary to verify the information furnished him all their books 
and records pertinent to matters under investigation and the books 
and records of their affiliates and subsidiaries shall during the usual 
hours of business be subject to the examination of the Secretary. 
The Secretary's determination as to the necessity of and justification 
for any such examination shall be final and conclusive. 

Sec. 3. Keeping boo\s and records. The shippers and their re- 
spective affiliates and subsidiaries shall severally keep books and 
records which will clearly reflect all financial transactions of their 
respective businesses and the financial condition thereof. 

Sec. 4. Confidential information. All information furnished the 
Secretary pursuant to this article shall remain confidential in ac- 
cordance with the applicable general regulations, Agricultural Ad- 
justment Administration. 

Sec. 5. Reports to committees. For the purpose of enabling the 
control and commodity committees to perform their respective 
functions under this agreement, each shipper shall furnish to a 
confidential employee or employees designated respectively by the 
control and commodity committees, in such form and at such times 
and substantiated in such manner as shall be prescribed respectively 
by the control and commodity committees, information with respect 
to the quantity, kind and variety, grade and size of fruit, grower 
for whom such fruit is shipped, method of sale, routing and diver- 
sion of cars during such periods of time as designated respectively 
by the said committees. Such information and reports furnished 
the aforesaid employee or employees shall be confidential, and 
shall not be disclosed to any person except to the Secretary upon 
his request, except that the confidential employee or employees of 
the said committees or the Secretary may compile the information 



DECIDUOUS FRUIT AGREEMENT 399 

in such form as will not reveal the identity of individual informants 
and may make the compilation available to the public, and if any 
confidential employee shall disclose any information except as afore- 
said, he shall be subject to immediate removal by the Secretary: 
Provided, That, information with respect to shipments and diver- 
sions to auction markets, including the name of the shipper, car 
number, contents and destination of any or all cars destined to an 
auction market, may be divulged to any commodity committee or 
the control committee. 

The shippers agree to and do hereby authorize any and all rail- 
road companies and transportation companies to furnish to the 
confidential employee of the control committee or the commodity 
committee, a record of cars ordered, the point of origin, the shipper, 
the car number, the destination, and any diversion of the shipment 
of any carload of fruit shipped, for the purpose of assisting in the 
orderly distribution of fruit. Such information and reports shall be 
confidential and shall not be disclosed to any person except to the 
Secretary upon his request and except that a confidential employee 
or employees of said committee or the Secretary may compile such 
information in such form as will not reveal the identity of indi- 
vidual shippers and may make the compilation available to the 
public. 

ARTICLE XI. APPEALS 

Section i. Appeals. Any grower or shipper may petition the 
Secretary to review any order or decision of the control or a com- 
modity committee or of any sub-committees thereof. Pending the 
disposition by the Secretary of any appeal, the parties shall abide by 
the order or decision of the control committee, unless the Secretary 
shall rule otherwise pending such disposition. 

Sec. 2. Action upon appeal. Any such petition must be filed in 
writing setting forth the facts upon which it is based. The Secre- 
tary shall, if the facts stated show reasonable grounds for appeal, 
grant such petition and may revise or change in any manner any 
order or decision from which an appeal is taken. 

ARTICLE XII. LICENSING 

The contracting shippers hereby apply for and consent to licens- 
ing by the Secretary. Such licenses shall be in accordance with 
applicable regulations heretofore and hereafter prescribed by the 



4 oo MARKETING AGREEMENTS 

Secretary and approved by the President, and shall be subject to 
the rights and powers of the Secretary to modify or amend any 
license issued pursuant to the foregoing. 

ARTICLE XIII. EFFECTIVE TIME AND TERMINATION 

Section i. Effective time and termination. This agreement shall 
become effective at such time as the Secretary may declare above 
his signature attached hereto, and this agreement shall continue 
in force, subject to termination as follows: 

(a) The Secretary may at any time terminate this agreement as 
to all parties hereto by giving at least one day's notice by means 
of a press release or in any other manner which the Secretary may 
determine; 

(b) The Secretary may at any time terminate this agreement as 
to any party signatory hereto, by giving at least one day's notice, 
by depositing the same in the mail and addressed to such party 
at his last known address; 

(c) The Secretary shall terminate this agreement upon the request 
of contracting shippers who shipped not less than 67 per cent of 
the total shipments of all such shippers during the preceding season, 
or of contracting growers who produced and delivered for fresh 
shipment not less than 67 per cent of the total fruit produced and 
delivered for fresh shipment by all contracting growers during the 
preceding season, by giving notice in the same manner as provided 
in Paragraph (a) of this section; 

(d) This agreement shall in any event terminate whenever the 
provisions of the act authorizing it cease to be in effect. 

Sec. 2. Effect of termination or amendment. Unless otherwise 
expressly provided in the notice of termination or in the amend- 
ment, no termination or amendment of this agreement shall either 
(a) affect, waive, or terminate any right, duty, obligation or lia- 
bility which shall have arisen or may thereafter arise in connection 
with any provision of this agreement; (b) release or forgive any 
violation of this agreement, occurring prior to the effective time 
of such termination or amendment; or (c) affect or impair any 
rights or remedies of the Secretary or of any other person with 
respect to any such violation. 

Sec. 3. Continuing power and duty. If upon the termination 
of this agreement there are any obligations arising thereunder, the 



DECIDUOUS FRUIT AGREEMENT 401 

final accrual or ascertainment of which requires further acts by any 
party hereto or any committee hereunder or by any other person, 
the power and/or duty to perform such further acts shall continue 
notwithstanding such termination; Provided, That any such acts 
required, under the terms of this agreement, to be performed by 
any committee hereunder shall be performd by the members of 
such committee functioning at the effective time of such termina- 
tion, or, if the Secretary shall so direct, by such other person, persons, 
or agency as the Secretary may designate. 

ARTICLE XIV. DURATION OF IMMUNITIES 

The benefits, privileges and immunities conferred by virtue of 
this agreement shall cease upon its termination, except with respect 
to acts done under and during the existence of this agreement; and 
the benefits, privileges and immunities conferred by this agreement 
upon any party signatory hereto shall cease upon its termination 
as to such party, except with respect to acts done under and during 
the existence of this agreement. 

ARTICLE XV. AMENDMENTS 

Section i. Proposals. Amendments to this agreement may at 
any time be proposed by any party hereto, by any committee created 
hereunder, or by the Secretary. 

Sec. 2. Notice. Notice of such proposed amendments shall be 
given to all contracting shippers and contracting growers either 
by publishing a summary thereof in a newspaper of general cir- 
culation, or by placing in the mail a copy thereof addressed to each 
contracting shipper and contracting grower at his last known 
address, except that the Secretary may give notice of any amend- 
ment proposed by him by sending a copy thereof to the control 
committee and issuing a press release. 

Sec. 5. Approval. Upon the approval of any proposed amend- 
ment by contracting shippers who shipped not less than 67 per cent 
of the total quantity of the commodity shipped by all contracting 
shippers during the preceding season, or by contracting growers 
who produced and delivered for fresh shipment not less than 67 
per cent of the total quantity of the commodity produced and de- 
livered for fresh shipment by all contracting growers during the 
preceding season, the Secretary may approve such amendment, in 



4 02 MARKETING AGREEMENTS 

which case it shall become effective at such time as the Secretary 
shall designate; but unless the Secretary shall find that the subject 
matter of the proposed amendment was included within the scope 
of the hearing held upon the agreement, or a prior amendment 
thereto, pursuant to the act, or if contracting shippers who during 
the preceding season shipped 20 per cent of the commodities shipped 
by all contracting shippers during such preceding season or con- 
tracting growers who during the preceding season produced and 
delivered for fresh shipment 20 per cent of the commodities pro- 
duced and delivered for fresh shipment by all contracting growers 
during such season shall so request, the Secretary shall not approve 
any such amendment unless and until due notice and opportunity 
for hearing have been afforded in accordance with applicable gen- 
eral regulations of the Agricultural Adjustment Administration. 

ARTICLE XVI. COUNTERPARTS 

This agreement may be executed in multiple counterparts and 
when one counterpart is signed by the Secretary, all such counter- 
parts shall constitute when taken together one and the same instru- 
ments as if all such signatures were contained in one original. 

ARTICLE XVII. ADDITIONAL PARTIES 

After this agreement takes effect any grower or shipper may 
become a party thereto by executing and filing with the Secretary 
a counterpart of this agreement. This agreement shall take effect 
as to such new contracting party at the time the duly executed 
counterpart is received by the Secretary, and the benefits, privileges, 
and immunities conferred by this agreement shall then be effective 
as to such new contracting party. 

ARTICLE XVIII. AGENTS 

The Secretary may by designation in writing, name any person 
or persons, including officers or employees of the government, or 
bureaus or divisions of the United States Department of Agricul- 
ture, to act as his agents or agencies in connection with any of the 
provisions of this agreement, and he may authorize any such agent 
to designate or appoint persons, including officers or employees of 
the United States Department of Agriculture, to exercise or per- 
form any or all of the powers and functions delegated to them as 



DECIDUOUS FRUIT AGREEMENT 403 

may be deemed necessary or advisable to accomplish the proper 
execution or performance of such powers and functions. 

ARTICLE XIX. ANTI-TRUST LAWS 

Any exemption from the anti-trust laws and/or any validation 
of any acts or things which would otherwise have been unlawful 
which may result from the execution of this agreement by the 
Secretary shall not extend or be construed to extend further than 
is absolutely necessary for the purpose of carrying out the provisions 
of this agreement. 

ARTICLE XX. DEROGATION 

Nothing contained in this agreement is or shall be construed to 
be in derogation or in modification of the rights of the Secretary 
or of the United States (a) to exercise any powers granted by the 
act or otherwise, and/or (b) in accordance with such powers to act 
in the premises whenever such action is deemed advisable. 

ARTICLE XXI. LIABILITY OF COMMITTEE MEMBERS 

No member of any committee created hereunder shall be held 
responsible in any way whatsoever to any one for errors in judg- 
ment, mistakes, or other acts, either of commission or omission, 
except for his own willful misfeasance or malfeasance. 

ARTICLE XXII. SEPARABILITY 

If any provision of this agreement is declared invalid, or the 
applicability thereof to any person, circumstance, or thing is held 
invalid, the validity of the remainder of this agreement and/or the 
applicability thereof to any other person, circumstance, or thing 
shall not be affected thereby. 

ARTICLE XXIII. SIGNATURE OF PARTIES 



[Effective July 20, 1935.] 



APPENDIX B 

MARKETING AGREEMENT FOR PACKERS OF WALNUTS 
GROWN IN CALIFORNIA, OREGON, AND WASH- 
INGTON, WITH AMENDMENTS 1 

The parties to this agreement are the contracting packers of wal- 
nuts grown in California, Oregon, and Washington, and the Secre- 
tary of Agriculture of the United States. 

Whereas, the Congress of the United States by the Agricultural 
Adjustment Act approved May 12, 1933, as amended, has declared 
that a national economic emergency exists due to the severe and in- 
creasing disparity between the prices of agricultural and other com- 
modities and that there should be established and maintained such 
a balance between the production and consumption of agricultural 
commodities and such marketing conditions therefor, as will estab- 
lish prices to the farmers at a level that will give agricultural com- 
modities a purchasing power with respect to articles that farmers 
buy, equivalent to the purchasing power of agricultural commodi- 
ties in the base period described in said act; and 

Whereas, pursuant to said act, the parties hereto, for the purpose 
of effectuating the declared policy of said act desire to enter into a 
marketing agreement under the provisions of Section 8 (2) of the 
act; and 

Whereas, walnuts grown in the States of California, Oregon, and 
Washington and handled by the contracting packers enter into the 
current of interstate and foreign commerce; 

Now, therefore, in consideration of the premises and of the 
mutual promises hereinafter contained, the parties hereto agree 
as follows: 2 



1 This document is a compilation of the marketing agreement and the 
amendments thereto. Amendments appear in italic type. All of the amend- 
ments printed herein were approved by the Secretary of Agriculture, August 
25, 1934, and became effective at 12:01 a.m., eastern standard time, August 
27, 1934- 

2 This is the preamble of the original marketing agreement; the preamble of 
the amendments is not printed herein. 

404 



WALNUT AGREEMENT 405 

ARTICLE I. DEFINITIONS 

As used in this agreement, the following words and phrases shall 
be defined as follows: 

1. "Secretary" means the Secretary of Agriculture of the United 
States of America. 

2. (a) "Packer" means any processor-distributor or unshelled 
walnuts. . 

(b) " Processor" means any person packing and handling un- 
shelled walnuts. 

(c) "Distributor" means any person, other than a processor, 
handling unshelled walnuts which have not been subjected, in the 
hands of a previous holder, to compliance with the surplus control 
provisions hereinafter contained. 

(d) "Person" means individual, partnership, corporation, asso- 
ciation, and any other business unit. 

5. (a) "Packing" means bleaching, cleaning, grading, or other- 
wise preparing for market in any manner whatsoever. 

(b) "Handling" means selling (through the channels of whole- 
sale or retail trade) in the current of interstate or foreign com- 
merce, or in competition with, or so as to burden, obstruct or other- 
wise affect interstate or foreign commerce. 

4. "Foreign commerce" means commerce with any part of the 
world outside of the United States and its possessions. 

5. "Act" means the Agricultural Adjustment Act approved May 
12, 1933, as amended. 

6. "Walnuts" means only walnuts of the "English" (Juglans 
Regia) varieties, grown in the States of California, Oregon, or 
Washington. "Merchantable walnuts" means all unshelled walnuts 
meeting the specifications set forth in Exhibit A attached hereto or 
such additional specifications as may be prescribed by the control 
board pursuant to Section 3 of Article III and meeting the require- 
ments of the federal standard. "Cull walnuts" means all lots of 
unshelled walnuts which are below the federal standard and which 
cannot be brought up to that standard by standard commercial 
practices. 

7. "Pac1(' means a specific commercial classification of mer- 
chantable walnuts packed in accordance with the specifications 
given in Exhibit A attached hereto or in accordance with such addi- 



4 o6 MARKETING AGREEMENTS 

tional specifications as may be prescribed by the control board 
pursuant to Section 3 of Article 111. 

8. "Sheller" means any party or parties, natural or artificial, 
engaged in the business of shelling walnuts for any purpose. 

9. "Federal standard" means the regulation issued by the Secre- 
tary of Agriculture August 22, 1932, or any future amendment 
thereof, said regulation now providing: 

* * * on and after September 1, 1933, the following standards, 
indicating percentage of deteriorated or unsound nuts, will be 
used in judging legality of nuts under the terms of the Federal 
Food and Drugs Act: 

Unshelled 
Variety Per cent 

Walnuts 10 

10. "Control board" or " 'walnut control board" means the control 
board created pursuant to Article 11 of this agreement. 

n. "Crop year" means the twelve months from September 1 to 
the following August 31. 

• ARTICLE II. CONTROL BOARD 

1. Membership and organization, (a) A control board is hereby 
established consisting of nine members. Eight members shall be 
appointed, subject to the disapproval of the Secretary, as follows: 

Four members, and their successors, shall be selected by the Cali- 
fornia Walnut Growers Association, a co-operative association or- 
ganized under the laws of California, with its principal place of 
business in Los Angeles, California; one member, and his successor, 
shall be selected by the North Pacific Nut Growers Co-operative, a 
co-operative association organized under the laws of Oregon, with 
its principal place of business in Dundee, Oregon; one member, 
and his successor, shall be selected by the majority vote of all other 
packers doing business in the State of Oregon signatory hereto; 
one member, and his successor, shall be selected by the majority 
vote of all other packers doing business in the State of California 
signatory hereto; and one member, and his successor, shall be 
selected by walnut growers in the State of California who do not 
market their walnuts through California Walnut Growers Associa- 
tion. 

If any member or members of said board are not selected as 



WALNUT AGREEMENT 407 

provided in this article within ten days after the effective date 
hereof or within ten days after any vacancy occurs, then in such 
event the Secretary shall select such member or members. For 
the purpose of promptly placing upon the control board a represen- 
tative of the walnut growers in California described in Paragraph 
(a) hereof, the Secretary may designate such member from three 
nominees, who are walnut growers in California not marketing 
their walnuts through the California Walnut Growers Association, 
submitted by the California Farm Bureau Federation and such 
member shall serve until said walnut growers described in Para- 
graph (a) hereof shall elect their representative. 

(b) Each member selected shall promptly file a written acceptance 
of his appointment with the Secretary or his designated representa- 
tive. In the event that all members of the board specified in Para- 
graph (a) hereof have not been selected within three days of the 
effective date of this agreement, the control board may organize 
and function upon the filing of such written acceptance by five or 
more members representing 75 per cent of the estimated tonnage 
available for shipment during the current crop year. The board 
shall elect such officers and adopt such rules for the conduct of its 
business as it may deem advisable. 

(c) An additional member of the control board shall be selected 
by a three-fourths vote of the members selected pursuant to the 
provisions of Paragraph (a) hereof. 

(d) The members of the control board shall serve without com- 
pensation but shall be allowed their necessary expenses, except that 
the member designated pursuant to Paragraph (c) shall be entitled 
to his expenses and reasonable compensation to be paid by the 
control board. 

(e) The members of the control board shall select a chairman 
from their membership and all communications from the Secretary 
may be addressed to the chairman at such address as may from 
time to time be filed with the Secretary. 

(/) The control board may provide for voting by mail or tele- 
gram upon due notice to all members, and when any proposition is 
submitted for voting by such method, one dissenting vote shall 
prevent its adoption until submitted to a meeting of the control 
board. 

(g) The control board shall authorize the designation by the 



4 o8 MARKETING AGREEMENTS 

appointing authority specified in Paragraph {a) hereof, in such 
manner as it may prescribe, of a substitute for any member of the 
control board. A substitute so designated shall bd entitled, in the 
absence of the member for whom he is a substitute, to attend and 
participate in and exercise all of the rights of such member in 
meetings of the control board. 

i. Duties and powers, (a) The control board shall supervise the 
performance of this agreement and shall act as intermediary between 
the Secretary and the packer. 

(b) The control board shall have full power and authority to 
make such expenditures as it deems necessary to carry out the 
provisions of this agreement. 

(c) The control board shall cause to be kept complete and 
proper accounts of all receipts, disbursements, shipments of mer- 
chantable walnuts delivered to the board, and of all other business 
transactions conducted by it. 

(d) The boo\s and records of the control board shall be open 
to inspection by the Secretary or his duly authorized representative. 

(e) The control board shall have full power and authority to 
appoint such employees as it may deem necessary and to determine 
the salaries and define the duties of any such employees. 

(/) The control board shall hear and dispose of all questions 
and disputes whatsoever arising in connection with the performance 
of this agreement, subject only to the right of appeal hereinafter 
granted to the Secretary: Provided, That if a member of the con- 
trol board or a packer represented by him be charged with a breach 
of this agreement, the Secretary may, upon application of any party 
in interest, disqualify such member from participating in the in- 
vestigation and decision of such charge and shall appoint a dis- 
interested individual to act as a substitute for the member dis- 
qualified. 

(g) All decisions of the control board, except where otherwise 
specifically provided, shall be by a majority vote of the members 
who have qualified by filing their written acceptance and who are 
eligible to vote. 

(h) Any commercial business transactions within the power of 
the control board may be conducted by a corporation to be organ- 
ized in such manner and with such powers as the control board 



WALNUT AGREEMENT 409 

may determine, and subject to the approval of the Secretary prior 
to completion of its organization: Provided, however, That the 
board of directors of such corporation shall be composed of the 
members of the control board or of other individuals selected in the 
manner herein provided for the selection of members of the control 
board, and that such corporation in the conduct of its business shall 
be subject to all of the provisions hereof applicable to the exercise 
by the control board of its powers and the performance of its duties 
and shall, by written notice filed with the Secretary, ma\e itself 
subject to the provisions of this agreement to the same extent as 
the control board would be and as though all tdrms and provisions 
hereof applicable to the control board specifically referred to such 
corporation. 

ARTICLE III. CONTROL OF DISTRIBUTION 

1. Determination of total supply. Each packer within five days 
after the effective date of this agreement, and thereafter on or 
before August 15 of each year, shall file with the control board a 
sworn statement of the merchantable walnuts held by him on the 
preceding August 1 showing the quantity, pack, and location 
thereof. The control board shall determine not later than 5 days 
after organization in 1933 and not later than September 1 of each 
succeeding year the estimated domestic supply of merchantable 
walnuts produced or to be produced that year and shall add thereto 
all stocks of merchantable walnuts of previous years' crops in pos- 
session of all packers on August 1. Such total is hereinafter des- 
ignated as the "total supply of merchantable walnuts." 

2. Determination of salable percentage. The control board shall 
determine, not later than 5 days after organization in 1933, and not 
later than September 1 of each succeeding year, the estimated con- 
sumptive demand, on the basis of prices not exceeding the maximum 
prices hereinafter specified, for the ensuing year in the United 
States. The control board shall then determine and promptly an- 
nounce the proportion which said estimated consumptive demand 
bears to the total supply of merchantable walnuts. Such percentage 
shall be the "salable percentages." The control board or the Secre- 
tary may at any time during the crop year increase the salable per- 
centage. The determination of the salable percentage or any in- 



410 MARKETING AGREEMENTS 

crease thereof by the control board shall require a two-thirds vote 
of the members of the control board who have been selected and 
qualified and shall be subject to disapproval by the Secretary. 

j. Authorized pac\s. Except as otherwise provided in Article Vll 
hereof for the sale\ of cull walnuts, packers shall not sell or offer for 
sale or ship any unshelled walnuts other than merchantable walnuts 
and all merchantable walnuts sold or offered for sale or shipped 
shall be of the pac\s specified in Exhibit A hereto attached; pro- 
vided that the control board, on application of any packer, may pre- 
scribe additional pac\ specifications, and walnuts meeting such 
special pac\ specifications and meeting the requirements of the 
federal standard shall be deemed to be merchantable walnuts. 

4. Individual supply and determination of surplus. Except as 
provided in Sections 7 and 11 of this article, no packer shall sell 
during any crop year any merchantable walnuts in excess of the 
salable percentage of his supply during such year. Said supply for 
each processor shall be the carry-over from preceding years held by 
him on August 1, plus, at any time during such crop year, the 
merchantable walnuts packed by him during such crop year up to 
that time, and, in the case of a distributor, all merchantable walnuts 
held bv him on August 1 plus all merchantable walnuts acquired 
during the crop year, which have not been subjected, in the hands 
of a previous holder, to compliance with the surplus control provi- 
sions of this agreement. All merchantable walnuts in the supply 
of a pac\er at any time during a crop year in excess of the salable 
percentage of his supply at that time shall be deemed surplus wal- 
nuts, and the difference between the salable prcentage and 100 
per cent shall be the surplus percentage. Such surplus walnuts 
shall be disposed of only as hereinafter provided, and except as 
provided in Sections 7 and 11 of this article and in Article V, no 
such surplus walnuts shall be permitted to enter the channels of 
trade as unshelled walnuts. 

5. Delivery of surplus to control board. All surplus walnuts of 
each packer shall be delivered to the control board at such time 
and place as the control board may direct. A packer may substitute 
an equal weight of merchantable walnuts of any pac\ or quality 
for merchantable walnuts theretofore delivered by such pac\er to 
the control board and still held unsold by the control board, and, 
upon such exchange, appropriate adjustments shall be made in the 



WALNUT AGREEMENT 411 

credits specified in Section 4 of Article V for the surplus walnuts 
delivered by that packer. All costs of such exchange shall be borne 
by the packers requesting the exchange. 

6. Release of surplus on increase of salable percentage. Upon 
any revision of the salable percentage each packer shall be per- 
mitted to sell a total quantity of his merchantable walnuts equal to 
such revised percentage and the control board shall release to each 
packer such quantity of his surplus walnuts as will be sufficient to 
permit that packer to sell a total quantity equal to such revised 
salable percentage of his merchantable walnuts. 

7. Sale of surplus by individual packer. At any time before 
December 15 of any year, a packer, having sold or contracted to 
sell any part or all of his surplus walnuts, shall be entitled to have 
re-delivered to him such surplus walnuts so sold or contracted for 
sale out of those previously delivered by him and still held unsold 
by the control board. Upon the re-delivery of such walnuts by the 
control board, the packer shall immediately pay to the control board 
the proceeds of such sale. The proceeds of such sales shall be the 
amount at which such sales were actually made {the selling price 
to be no less than the minimum prices established as herein speci- 
fied) less a cash discount of 7.5 per cent. The packer making such 
payment to the control board shall be credited with the amount of 
such payment in lieu of a credit for surplus walnuts delivered. 
Such payment or a ratable proportion thereof {determined by rela- 
tive weight) shall be refunded to the packer upon delivery by him 
to the control board at any time prior to December 31 of the same 
year, of a quantity of merchantable walnuts, of any pac\ or quality, 
to replace in whole or in part any lot of surplus walnuts thereto- 
fore sold by him. Upon such delivery appropriate adjustments 
shall be made in the credits specified in Section 4 of Article V for 
the surplus walnuts delivered. 

8. Deficiency in surplus delivered to board. At all times each 
packer must have delivered to or hold ready for delivery to the 
control board a quantity of merchantable walnuts equal to the sur- 
plus percentage of his merchantable walnuts, and in the event of 
any deficiency therein on the part of any packer, not covered by 
payments already made in accordance with the provisions of Sec- 
tion 7 hereof, such packer shall pay to the control board, in the 
manner specified in Section 7, cash representing the proceeds of 



4 i2 MARKETING AGREEMENTS 

the sale of merchantable walnuts in a quantity equal to such 
deficiency. 

9. Refunds upon increase of salable percentage. In the event the 
salable percentage is increased after a packer has deposited with 
the board cash in lieu of surplus walnuts, such packer shall be paid 
from such cash deposit in lieu of the release of surplus walnuts, an 
amount (not to exceed the amount deposited) representing the in- 
crease in salable percentage computed at the price at which such 
cash deposit had been made. If such deposit had been made at 
different prices, refund shall be made on the basis of each price to 
the extent of the quantity deposited at such price, beginning with 
the highest price. After any packer's cash deposits have been re- 
funded in full, such packer shall be entitled to the release of surplus 
walnuts for the remainder, if any, of the increase in the salable 
percentage not represented by such cash refunds. 

jo. Disposition of cash deposits. Any money received by the 
control board as specified in Sections 7 and 8, remaining in its 
possession on or after January 1 of the crop year, shall be used by 
said board to purchase from\ any packers unsold walnuts held by 
them within their salable percentage of merchantable walnuts. If 
the fund is insufficient to purchase all of the walnuts remaining 
within the salable percentage of all packers, the board shall offer to 
purchase such walnuts ratably from packers in proportion to their 
said holdings on date of offer and at the values fixed by the control 
board for the credit of surplus walnuts as provided in Section 4 
of Article V, less a cash discount of 1.5 per cent and brokerage of 
2.5 per cent. In the event the salable percentage should be increased 
after the purchase by the control board of walnuts from the salable 
percentage of the several packers as herein provided and there should 
not remain in the possession of said board cash deposits in a sum 
sufficient to ma\e refunds in accordance with Section 9 hereof, the 
packers by whom such walnuts were sold to the control board shall 
be required to rescind said sales and refund the proceeds thereof 
ratably in proportion to the amounts of their respective sales to the 
extent necessary to refund to the control board a total amount 
sufficient to enable the board to ma\e the refunds required by said 
Section 9. All purchases of walnuts by the control board pursuant 
to the terms of this section shall be subject to the conditions of 
rescission and refund as above pr-ovided. Any money that may 



WALNUT AGREEMENT 413 

remain at the close of the crop year after such purchases as herein 
provided have been completed shall become part of the holdings of 
the control board in the same manner and for the same purposes 
as the proceeds of surplus walnuts disposed of by said board. 

11. Postponement of settlement for surplus upon filing bond. A 
packer shall be excused from complying, between and including the 
dates of September i and December 15 of any crop year, with 
the requirements of Sections 4, 5, 7 and 8 of this article as to the 
selling of surplus walnuts or the times when he shall deliver to the 
control board surplus walnuts or shall pay to its proceeds of sales 
thereof, upon his filing with the control board a bond with a surety 
or sureties acceptable to the board, in such reasonable penal amount 
as the board shall direct, conditioned upon the delivery to the con- 
trol board of his surplus walnuts and/or the payment to the control 
board of proceeds of the sale of his surplus walnuts in accordance 
with the other provisions of said sections, not later than December 
75 of such crop year. The cost of such bond shall be borne by the 
pac\er filing same. 

ARTICLE IV. CONTROL OF SALE PRICES 

1. The control board shall each year, on or before October 1$, 
establish, subject to the disapproval of the Secretary, minimum 
prices' f. o. b. California or Oregon common shipping points, for 
each pac\ of merchantable walnuts, including such special pac\s 
as may be authorized, and no packer shall sell merchantable walnuts 
at less than such prices. The minimum prices so fixed for any year 
may be changed by the control board, subject to disapproval by 
the Secretary, the effective date of such change to be fixed by the 
board at a date at least five days after the decision. The establish- 
ment or change of minimum prices shall require a two^thirds vote 
of the members of the control board who have been selected and 
qualified. No packer shall offer merchantable walnuts of the new 
crop at firm prices until minimum, prices for that crop year have 
been established by the control board, but until such minimum 
prices are established any packer may continue to sell merchantable 
walnuts of previous years' crops, within his salable percentage, at 
prices not less than those established for the preceding year. 

2. Maximum prices. As long as the control board has any unsold 
stoc\s of merchantable walnuts, of any given pac\, no packer is 



414 MARKETING AGREEMENTS 

permitted to sell merchantable walnuts of such pac\ at prices in 
excess of the following prices, f. o. b. California or Oregon common 
shipping points. 

California Pac\s 

Cents per lb. 

No. i grade or No. i soft shell 16.5 

Baby grade 11.5 

Long type baby grade 12.5 

Large budded, large Concords, large Franquettes, 

large Mayettes, and large Paynes . 20 

Large Eurekas 21 

Medium budded 15 

Fancy Concords, fancy Franquettes, fancy Mayettes, 

and fancy Paynes 16.5 

Fancy Eurekas 19.5 

Oregon and Washington Pac\s 

Large Franquettes 21 

Fancy Franquettes 17.5 

Standard medium Franquettes 14.5 

Large soft shells 20 

Fancy soft shells 15 

Standard or medium soft shells 12.5 

The foregoing maximum prices may be changed by the control 
board, with the approval of the Secretary. 

3. No packer shall make any discounts or allowances which will 
reduce any prices at which he has agreed to sell: Provided, however, 
That any packer may allow a buyer a total cash discount not ex- 
ceeding 1.5 per cent; and Provided further, That any packer may 
allow to legitimate food brokers a total brokerage not exceeding 
2.5 per cent. 

4. No packer shall give to purchasers allowances for advertising 
not actually placed, or make allowances for unsupported claims for 
damage or shortage, or make allowances on unverified complaints 
of the quality of goods, or make shipments without charge in 
excess of the stated quantity ordered or contracted for. No packer 
shall, through combination sales or by any other device or subter- 
fuge, permit any buyer to obtain walnuts at less than the minimum 
prices hereinbefore specified. 



WALNUT AGREEMENT 415 

ARTICLE V. DISPOSAL OF SURPLUS 

1. The control board shall have full power and authority to sell 
or dispose of any and all of its holdings of merchantable walnuts, 
subject to the following conditions: 

(a) No such merchantable walnuts shall be sold as unshelled 
walnuts (except to shellers with proper safeguards to prevent their 
entry into the channels of trade as unshelled walnuts) in the United 
States except that the board may, in its discretion, distribute within 
the United States to charitable institutions for charitable purposes, 
surplus walnuts as donations or at prices less than the minimum 
prices herein specified, with proper safeguards to prevent such wal- 
nuts thereafter entering the channels of trade. 

(b) In case such merchantable walnuts are sold for export to any 
foreign country including Canada, such sales shall be made only on 
execution of proper agreement to prevent re-importation into the 
United States, and in case of export to Canada they shall be sold 
only on the basis of a delivered price, duty paid. 

(c) The control board shall not, prior to January 15 of any crop 
year, dispose of (other than by release to the respective packers) 
more than 50 per cent of the surplus walnuts delivered to it. 

2. // the total supply, determined in accordance with the pro- 
visions of Section 1 of Article III, for the coming crop year be less 
than the estimated consumptive demand in the United States for 
such year, the control board shall release proportionately to each 
packer on September 1 of such year in so far as its holdings permit, 
such additional quantity of the actual merchantable walnuts deliv- 
ered by each pac\er to and still held unsold by the control board as, 
when added to the estimated new crop, will be sufficient to supply 
the estimated consumptive demand for the coming year but in no 
case shall the control board release a greater quantity of its hold- 
ings than is represented by the difference between the estimated con- 
sumptive demand and the estimated new crop. 

3. In the event the particular surplus walnuts previously delivered 
by any individual packer held unsold by the control board are less 
than the quantity which such packer is entitled to have released to 
him by reason of increase in the salable percentage or by reason of 
release of the cairy-over, in whole or in part, as provided in Section 
2 of this article, such deficit shall be made up by delivei'ing to such 
pac\er from other stoc\s held unsold by said board, merchantable 



4 i6 MARKETING AGREEMENTS 

walnuts of pac\s and qualities the same as or equivalent to the pac\s 
and qualities of surplus walnuts which had been delivered by that 
packer and disposed of by the board. 

4. All merchantable walnuts delivered to the control board shall 
be credited to the packer delivering same at such values as may be 
fixed, by the control board, not less than the minimum prices for 
the respective pac\s delivered. Each packer shall also be credited 
with any money payments made by him in accordance with the 
provisions of Sections 7 and 8 of Article III. Such credits shall be 
made for the purpose of determining the interest of each packer in 
the holdings of the control board. The interest of each pac\er in 
the holdings of the control board shall be in the proportion of the 
net credits of such packer to the total net credits of all packers. For 
the purposes of this section "holdings of the control board" means 
the merchantable walnuts held by or for it and the net proceeds of 
the sale or other disposition thereof and the unexpended cash de- 
posited with it as the proceeds of the sale of surplus walnuts by 
any packer. The control board shall distribute from time to time 
the proceeds of the sale of surplus walnuts ratably to the packers 
entitled thereto. 

ARTICLE VI. CERTIFICATION OF SHIPMENTS 

1. Every lot of merchantable walnuts shipped by a pac\er, in- 
cluding all lots delivered to or held for the control board, must be 
accompanied by a certificate. Said certificate, in case of walnuts 
grown in California, shall be issued by the Dried Fruit Association 
of California, but in case said association refuses to perform such 
service then said certificate shall be issued by any other inspector or 
inspectors designated by the control board. Certificates in the case 
of walnuts grown in Oregon and Washington shall be issued by 
inspectors designated by the control board. All such certificates 
shall show, in addition to such other requirements as the control 
board may specify, the identity of the packer, the quantity and pac\ 
of merchantable walnuts in such lot and that the walnuts covered 
by such certificate conform to the federal standard. Such certificate 
shall be issued only upon a showing that the packer requesting same 
has delivered or otherwise accounted for his surplus walnuts in 
accordance with the terms of this agreement: Provided, That during 
the portion of the crop year prior to December 15 such certificate 



WALNUT AGREEMENT 417 

shall be issued without such showing to any packer who has filed 
a bond in accordance with the terms of Section 11 of Article III. 
The cost of such certificate shall be paid by the packer owning 
such lot. 

2. Copies of each such certificate shall be furnished the packer, 
and the 1 control board. 

ARTICLE VII. SALE OF CULL WALNUTS 

Anything herein to the contrary notwithstanding, any packer 
may sell or deliver cull walnuts to any sheller: Provided, That, at 
the time each such shipment is made, the packer shall furnish the 
control board with a certificate, in form specified by the control 
board, detailing the amount of cull walnuts and to whom sold and 
delivered. 

ARTICLE VIII. ASSESSMENTS 

The control board is authorized to levy upon and to collect from 
all pac\ers all assessments necessary to administer the provisions of 
this agreement. Such assessments shall be prorated on the basis of 
the entire tonnage upon which the salable percentage has been 
applied by each packer during the crop year for which such assess- 
ments are made*. All assessments made hereunder shall be fixed 
and shall be used solely for the purpose of administering the provi- 
sions of this agreement. In the event excess money is collected by 
assessment during any year such excess shall be refunded pro rata 
at the end of that year by the control board to the packers paying 
said money, and such refund shall be made upon the same basis on 
which said assessments were levied and collected. 

ARTICLE IX. DISTRIBUTION OF SURPLUS PROCEEDS 

1. Each packer purchasing or receiving walnuts, other than mer- 
chantable walnuts, from growers or from any other parties (said 
growers and other parties being referred to in this article as 
"sellers"), if so requested by the seller, shall grade the walnuts so 
purchased or received in accordance with standard commercial 
practices for grading such purchases and receipts and shall correctly 
report to each seller the quantity of each such grade. 

2. Any packer at his option may purchase all of the walnuts 
offered by any seller at an agreed price to be paid at such time or 
times as may be agreed upon or may accept walnuts from sellers 



4 i8 MARKETING AGREEMENTS 

pursuant to any pooling plan under which all of the proceeds less 
deductions mutually agreed upon between packer and seller are 
returned to the sellers. 

3. Any packer purchasing walnuts from a seller on any basis 
not specified in Section 2 of this article shall settle with such seller 
for the salable percentage then in effect, at such price as may be 
agreed upon between the packer and the seller, and in addition 
thereto shall, from time to time, pay to the seller, or his assignee, 
a just and reasonable proportion of the proceeds received by said 
packer from the sale or other disposition of the surplus of such 
walnuts. 

4. The control board, or any committee appointed by it for such 
purpose, shall consider complaints filed with or presented to it by 
any seller objecting to the quantity and grades reported pursuant 
to Section 1 of this article and to the distribution offered by any 
packer of the proceeds of the sale or other disposition of any such 
surplus walnuts. In the event of any such complaint all information 
presented relating to said transaction shall be carefully considered 
by said board or committee and the packer involved shall abide 
by the decision of the board or committee. 

ARTICLE X. REPORTS 

1. Each packer shall file with the control board such statistical 
reports as said board shall from time to time consider necessary or 
desirable to the administration of this agreement. 

2. The details of such reports shall be confidential and they shall 
not be revealed to any persons except the members of the control 
board and its duly authorized employees or to the Secretary: Pro- 
vided, however, That the information obtained from such reports 
may be combined by the control board in the form of statistical 
studies or data that will not disclose the business transactions of 
any individual packer. 

ARTICLE XI. INVESTIGATIONS AND APPEALS 

1. Each packer shall maintain a system or systems of accounting 
which shall accurately reflect a true account and condition of its 
walnut business and of any affiliated or subsidiary companies or 
agencies. Each packer shall furnish such information to the Secre- 
tary as the Secretary may request including information on and in 
accordance with forms supplied by him. 



WALNUT AGREEMENT 419 

2. Each packer's books and records, including the books and rec- 
ords of affiliated or subsidiary companies or agencies, shall, during 
usual hours of business, be subject to the examination of the Secre- 
tary for the purpose of assisting the Secretary in the furtherance of 
his duties with respect to this agreement, including the verification 
of any information which the Secretary may require any packer 
to give. 

3. Except as may be necessary in the course of an investigation 
of a supposed breach of any provision of this agreement, any in- 
formation obtained by the Secretary shall remain the confidential 
information of the Secretary, and shall not be disclosed by him 
except upon lawful demand by the President, by either house of 
the Congress, or any committee thereof, or by any court. The 
Secretary, however, may combine and publish the information ob- 
tained from packers in the form of general statistical studies or 
data. 

4. If information shall come to the knowledge of any packer of 
the violation of any of the terms or conditions of this agreement 
by any other packer, the packer having such knowledge shall notify 
the control board of such violation by a written statement con- 
taining the charges and all available substantiating evidence. 

5. // the control board upon receipt of any information from 
any source, shall find therein evidence that any packer is violating 
any terms or conditions of this agreement, it shall thereupon be the 
duty of said control board to investigate such suspected violation. 
The control board may call upon said packer to furnish a statement 
of the facts under oath. After due investigation, if it is the opinion 
of the control board that the agreement is being violated, it shall 
order such pac\er to discontinue such violation, and in the event 
of non-compliance by the packer with such order, it shall report 
such non-compliance to the Secretary, and shall ma\e such further 
report regarding such violation to the Secretary as the control board 
deems advisable. 

6. For verification of any report submitted at the request of the 
control board or in aid of any investigation with respect to sus- 
pected breach of this agreement by any packer, or with respect to 
any dispute arising out of this agreement, the control board may 
designate a reputable firm of certified public accountants to examine 
his books and records during the usual business hours, and report 



4 2o MARKETING AGREEMENTS 

upon the matters that shall have been specified in a direction to 
such accountants. Said direction to the accountants must spe- 
cifically set forth the matters upon which a report is required and 
said accountants shall not reveal to the control board any other 
matters whatsoever disclosed by said examination. 

7. An appeal in writing may be taken to the Secretary from any 
decision of the control board with reference to a dispute or inves- 
tigation except as provided in Section 4 of Article IX within ten 
days after the decision is announced. Pending the disposition by 
the Secretary of any appeal the parties involved shall abide by the 
decision rendered by the control board, unless the Secretary shall 
rule otherwise pending such disposition. In the event of an appeal, 
it shall be the duty of the control board to forward to the Secre- 
tary the complete record of the board with regard to the matter. 

8. The Secretary may terminate this agreement as to any packer 
for any such cause which the Secretary deems sufficient. 

ARTICLE XII. MISCELLANEOUS 

i. If any provision of this agreement is declared invalid or the 
applicability thereof to any person, circumstance, or thing is held 
invalid, the validity of the remainder of this agreement and/or the 
applicability thereof to any other person, circumstance, or thing 
shall not be afifected thereby. 

2. No member of the control board, nor any employee thereof, 
shall be held responsible individually in any way whatsoever to 
any packer or any other person for errors in judgment, mistakes, or 
other acts either of commission or omission as such member or 
employee, except for acts of dishonesty. The liability of the packers 
hereunder is several and not joint, and no packer shall be liable 
for the default of any other packer. 

3. Nothing herein contained is or shall be construed to be in 
derogation or modification of the rights of the Secretary to exercise 
any powers granted to him by the act, and, in accordance with such 
powers, to act in the premises whenever he shall deem it advisable. 

4. The Secretary may perform any duty or exercise any right 
hereunder through the agency or instrumentality of any person or 
organization (not a party to this agreement) designated by the 
Secretary. 

5. The control board may from time to time by two-thirds vote 



WALNUT AGREEMENT 421 

of its qualified members propose amendments to or modifications 
of this agreement, and any such amendment or modification shall 
become effective at the date designated by the control board upon 
approval by the Secretary: Provided, That such amendment shall 
not become effective, if within fifteen days after its proposal by the 
control board, packers signatory to the agreement representing ten 
per cent or more of the tonnage of merchantable walnuts packed 
during the preceding crop year file with the control board written 
notice of their disapproval of said amendment. Decisions of the 
control board upon proposed amendments shall be subject to the 
same right of appeal as provided in Article XI. 

ARTICLE XIII. PARTIES AND TERMINATION 

1. Any packer, as hereinabove in Article I defined, may become 
a party to this agreement on equal terms with the contracting 
packers by execution and deposit with the Secretary of a counter- 
part of this agreement. 

2. This agreement shall become effective at such date as the 
Secretary may declare above his signature attached hereto and 
shall continue in force until terminated in one of the following 
ways: 

(a) The Secretary may at any time terminate this agreement by 
giving notice by means of a press release or in any other manner 
which the Secretary may determine. 

(b) Upon the written request of two or more packers who 
shipped during the preceding crop year more than 70 per cent of 
the total tonnage of merchantable walnuts shipped in said crop 
year, the Secretary shall, by notice in writing sent by registered 
mail, addressed to the control board, on or before the 20th day of 
any month, terminate this agreement as of the end of such month. 

(c) This agreement shall in any event terminate when those 
provisions of the act which authorize this agreement shall cease to 
be in effect. 

3. The benefits, privileges, and immunities conferred by virtue 
of this agreement shall cease upon its termination, except with 
respect to acts done prior thereto; and the benefits, privileges, and 
immunities conferred by virtue of this agreement upon any party 
signatory hereto, shall cease at its termination as to such party, 
except with reference to acts done prior thereto. 



422 MARKETING AGREEMENTS 

4. Each packer hereby applies for and consents to licensing by 
the Secretary pursuant to the act subject to terms and conditions 
not inconsistent with this agreement. 

This agreement may be executed in multiple counterparts. Each 
packer becoming a party to this agreement by execution of a coun- 
terpart shall sign and deposit with the Secretary said counterpart 
and, if a corporation, shall deposit together with said signed coun- 
terpart a certified copy of a resolution of its board of directors 
authorizing such signing and delivery. This agreement, together 
with all executed counterparts, shall constitute one and the same 
instrument as if all signatures were contained in one original. 

[Signature of parties] 

Effective October 9, 1933. 
i Amendments effective August 25, 1934. [ 



APPENDIX C 

SECTIONS OF THE AGRICULTURAL ADJUSTMENT ACT 
COVERING MARKETING AGREEMENTS AND ORDERS 

(As amended by Public No. 320, 74th Congress, approved 
August 24, 1935) 1 

[(2)] Sec. 8b. [After due notice and opportunity for hearing, 
to enter into marketing agreements with processors, producers, 
associations of producers, and others engaged in the handling of 
any agricultural commodity or product thereof, in the current of 
or in competition with, or so as to burden, obstruct, or in any way 
affect interstate or foreign commerce.] In order to effectuate the 
declared policy of this title, the Scretary of Agriculture shall have 
the power, after due notice and opportunity for hearing, to enter 
into marketing agreements with processors, producers, associations 
of producers, and others engaged in the handling of any agricul- 
tural commodity or product thereof, only with respect to such 
handling as is in the current of interstate or foreign commerce or 
which directly burdens, obstructs, or affects, interstate or foreign 
commerce in such commodity or product thereof. The making of 
any such agreement shall not be held to be in violation of any of 
the anti-trust laws of the United States, and any such agreement 
shall be deemed to be lawful: Provided, That no such agreement 
shall remain in force after the termination of this act. For the 
purpose of carrying out any such agreement the parties thereto shall 
be eligible for loans from the Reconstruction Finance Corporation 
under Section 5 of the Reconstruction Finance Corporation Act. 
Such loans shall not be in excess of such amounts as may be 
authorized by the agreements. 

[(3) To issue licenses permitting processors, associations of pro- 
ducers, and others to engage in the handling, in the current of 



1 Throughout the text of this document italics are used to indicate matter 
added by the 74th Congress by way of amendment to the Agricultural Adjust- 
ment Act, Public No. 10, 73 Cong., 48 Stat. L. 31 (1933), as previously 
amended. In instances where the language was stricken or changed, heavy 
black brackets are used to indicate the deleted matter. 

423 



4 2 4 MARKETING AGREEMENTS 

interstate or foreign commerce, of any agricultural commodity or 
product thereof, or any competing commodity or product thereof. 
Such licenses shall be subject to such terms and conditions, not in 
conflict with existing Acts of Congress or regulations pursuant 
thereto, as may be necessary to eliminate unfair practices or charges 
that prevent or tend to prevent the effectuation of the declared policy 
and the restoration of normal economic conditions in the marketing 
of such commodities or products and the financing thereof. The 
Secretary of Agriculture may suspend or revoke any such license, 
after due notice and opportunity for hearing, for violations of the 
terms or conditions thereof. Any order of the Secretary suspend- 
ing or revoking any such license shall be final if in accordance with 
law. Any such person engaged in such handling without a license 
as required by the Secretary under this section shall be subject to a 
fine of not more than $1,000 for each day during which the viola- 
tion continues.] 

ORDERS 

Sec. 8c. (i) The Secretary of Agriculture shall, subject to the 
provisions of this section, issue, and from time to time amend, 
orders applicable to processors, associations of producers, and others 
engaged in the handling of any agricultural commodity or product 
thereof specified in Sub-section (2) of this section. Such persons are 
referred to in this title as "handlers." Such orders shall regulate, 
in the manner hereinafter in this section provided, only such han- 
dling of such agricultural commodity , or product thereof, as is in 
the current of interstate or foreign commerce, or which directly 
burdens, obstructs, or affects, interstate or foreign commerce in 
such commodity or product thereof. 

(2) Orders issued pursuant to this section shall be applicable 
only to the following agricultural commodities and the products 
thereof (except products of naval stores), or to any regional, or 
mar\et classification of any such commodity or product: Mil\, fruits 
(including pecans and walnuts but not including apples and not 
including fruits, other than olives, for canning), tobacco, vegetables 
(not including vegetables, other than asparagus, for canning), soy- 
beans and naval stores as included in the Naval Stores Act and 
standards established thereunder (including refined or partially 
refined oleoresin). 

(5) Whenever the Secretary of Agriculture has reason to believe 



AMENDMENTS 425 

that the issuance of an order will tend to effectuate the declared 
policy of this title with respect to any commodity or product thereof 
specified in Sub-section (2) of this section, he shall give due notice 
of and an opportunity for a hearing upon a proposed order. 

(4) After such notice and opportunity for hearing, the Secretary 
of Agriculture shall issue an order if he finds, and sets forth in 
such order, upon the evidence introduced at such hearing {in addi- 
tion to such other findings as may be specifically required by this 
section) that the issuance of such order and all of the terms and 
conditions thereof will tend to effectuate the declared policy of this 
title with respect to such commodity. 

Terms — Milk and its Products 

(5) In the case of mil\ and its products, orders issued pursuant 
to this section shall contain one or more of the following terms and 
conditions, and {except as provided in Sub-section (7) ) no others: 

(A) Classifying mil\ in accordance with the form in which or the 
purpose for which it is used, and fixing, or providing a method for 
fixing, minimum prices for each such use classification which all 
handlers shall pay, and the time when payments shall be made, for 
mil\ purchased from producers or associations of producers. Such 
prices shall be uniform as to all handlers, subject only to adjustments 
for (1) volume, mar\et, and production differentials customarily 
applied by the handlers subject to such order, (2) the grade or 
quality of the mil\ purchased, and (3) the locations at which 
delivery of such mil\, or any use classification thereof, is made to 
such handlers. 
(B) Providing: 

(1) for the payment to all producers and associations of pro- 
ducers delivering mil\ to the same handler of uniform prices 
for all mil\ delivered by them: Provided, That, except in the 
case of orders covering mil\ products only, such provision is 
approved or favored by at least three-fourths of the p-oducers 
who, during a representative period determined by the Secre- 
tary of Agriculture, have been engaged in the production for 
market of mil\ covered in such order or by producers who, 
during such representative period, have produced at least three- 
fourths of the volume of such mil\ produced for mar\et dur- 
ing such period; the approval required hereunder shall be 



426 MARKETING AGREEMENTS 

separate and apart from any other approval or disapproval 
provided for by this section; or 

(ii) for the payment to all producers and associations of 

producers delivering mil\ to all handlers of uniform prices for 

all mil\ so delivered, irrespective of the uses made of such 

mil\ by the individual handler to whom it is delivered; 

subject, in either case, only to adjustments for (a) volume, market, 

and production differentials customarily applied by the handlers 

subject to such order, (b) the grade or quality of the mil\ delivered, 

(c) the locations at which delivery of such mil\ is made, and (d) 

a further adjustment, equitably to apportion the total value of the 

mil\ purchased by any handler, or by all handlers, among producers 

and associations of producers, on the basis of their production of 

mil\ during a representative period of time. 

(C) In order to accomplish the purposes set forth in Paragraphs 
(A) and (B) of this Sub-section (5), providing a method for 
making adjustments in payments, as among handlers {including 
producers who are also handlers), to the end that the total sums 
paid by each handler shall equal the value of the mil\ purchased 
by him at the prices fixed in accordance with Paragraph (A) hereof. 

(D) Providing that, in the case of all mil\ purchased by handlers 
from any producer who did not regularly sell mil\ during a period 
of 30 days next preceding the effective date of such order for con- 
sumption in the area covered thereby, payments to such producer, 
for the period beginning with the first regular delivery by such 
producer and continuing until the end of two full calendar months 
following the first day of the next succeeding calendar month, shall 
be made at the price for the lowest use classification specified in 
such order, subject to the adjustments specified in Paragraph (B) 
of this Sub-section (5). 

(E) Providing (/) except as to producers for whom such services 
are being rendered by a co-operative marketing association, quali- 
fied as provided in Paragraph (F) of this Sub-section (5), for mar- 
ket information to producers and for the verification of weights, 
sampling, and testing of mil\ purchased from producers, and for 
mafyng appropriate deductions therefor from payments to pro- 
ducers, and (ii) for assurance of, and security for, the payment by 
handlers for mil\ purchased. 

(F) Nothing contained in this Sub-section (5) is intended or 



AMENDMENTS 427 

shall be construed to prevent a co-operative marketing association 
qualified under the provisions of the act of Congress of February 
18, 1922, as amended, \nown as the " Capper-V ol stead Act" en- 
gaged in ma\ing collective sales or marketing of mil\ or its prod- 
ucts for the producers thereof, from blending the net proceeds of 
all of its sales in all markets in all use classifications, and making 
distribution thereof to its producers in accordance with the contract 
between the association and its producers: Provided, That it shall 
not sell mil\ or its products to any handler for use or consumption 
in any mar\et at prices less than the prices fixed pursuant to 
Paragraph (A) of this Subsection (5) for such mil\. 

(G) No marketing agreement or order applicable to mil\ and 
its products in any marketing area shall prohibit or in any manner 
limit, in the case of the products of mil\, the marketing in that area 
of any mil\ or product thereof produced in any production area in 
the United States. 

Terms — Other Commodities 
(6) In the case of fruits (including pecans and walnuts but not 
including apples and not including fruits, other than olives, for 
canning) and their products, tobacco and its products, vegetables 
(not including vegetables, other than asparagus, for canning) and 
their products, soybeans and their products, and naval stores as 
included in the Naval Stores Act and standards established there- 
under (including refined or partially refined oleoresin), orders 
issued pursuant to this section shall contain one or more of the 
following terms and conditions, and (except as provided in Sub- 
section (7) ) no others: 

(A) Limiting, or providing methods for the limitation of, the 
total quantity of any such commodity or product, or of any grade, 
size, or quality thereof, produced during any specified period or 
periods, which may be marketed in or transported to any or all 
markets in the current of interstate or foreign commerce or so as 
directly to burden, obstruct, or affect interstate or foreign commerce 
in such commodity or product thereof, during any specified period 
or periods by all handlers thereof. 

(B) Allotting, or providing methods for allotting, the amount 
of such commodity or product, or any grade, size, or quality 
thereof, which each handler may purchase from or handle on 
behalf of any and all producers thereof, during any specified period 



428 MARKETING AGREEMENTS 

or periods, under a uniform rule based upon the amounts produced 
or sold by such producers in such prior period as the Secretary 
determines to be representative, or upon the current production or 
sales of such producers, or both, to the end that the total quantity 
thereof to be purchased or handled during any specified period or 
periods shall be apportioned equitably among producers. 

(C) Allotting, or providing methods for allotting, the amount 
of any such commodity or product, or any grade, size, or quality 
thereof, which each handler may mar\et in or transport to any or 
all markets in the current of interstate or foreign commerce or so 
as directly to burden, obstruct, or affect interstate or foreign com- 
merce in such commodity or product thereof, under a uniform rule 
based upon the amounts which each such handler has available for 
current shipment, or upon the amounts shipped by each such handler 
in such prior period as the Secretary determines to be representa- 
tive, or both, to the end that the total quantity of such commodity or 
product, or any grade, size, or quality thereof, to be marketed in 
or transported to any or all markets in the current of interstate or 
foreign commerce or so as directly to burden, obstruct, or affect 
interstate or foreign commerce in such commodity or product 
thereof, during any specified period or periods shall be equitably 
apportioned among all of the handlers thereof. 

(D) Determining, or providing methods for determining, the 
existence and extent of the surplus of any such commodity or 
product, or of any grade, size, or quality thereof, and providing for 
the control and disposition of such surplus, and for equalizing the 
burden of such surplus elimination or control among the producers 
and handlers thereof. 

(E) Establishing, or providing for the establishment of, reserve 
pools of any such commodity or product, or of any grade, size, or 
quality thereof, and providing for the equitable distribution of the 
net return derived from the sale thereof among the persons bene- 
ficially interested therein. 

Terms Common to All Orders 

(7) In the case of the agricultural commodities and the products 
thereof specified in Sub-section (2) orders shall contain one or more 
of the following terms and conditions: 

{A) Prohibiting unfair methods of competition and unfair trade 
practices in the handling thereof. 



AMENDMENTS 429 

(B) Providing that (except for mil\ and cream to be sold for 
consumption in fluid form) such commodity or product thereof, or 
any grade, size, or quality thereof shall be sold by the handlers 
thereof only at prices filed by such handlers in the manner provided 
in such order. 

(C) Providing for the selection by the Secretary of Agriculture, 
or a method for the selection, of an agency or agencies and defining 
their powers and duties, which shall include only the powers: 

(i) To administer such order in accordance with its terms 
and provisions; 

(ii) To ma\e rules and regulations to effectuate the terms 
and provisions of such order; 

(Hi) To receive, investigate, and report to the Secretary of 
Agriculture complaints of violations of such order; and 

(iv) To recommend to the Secretary of Agriculture amend- 
ments to such order. 

No person acting as a member of an agency established pursuant 
to this paragraph (C) shall be deemed to be acting in an official 
capacity, within the meaning of Section 10 (g) of this title, unless 
such person receives compensation for his personal services from 
funds of the United States. 

(D) Incidental to, and not inconsistent with, the terms and 
conditions specified in Sub-sections (5), (6), and (7) and necessary 
to effectuate the other provisions of such order. 

Orders with Marketing Agreement 
(8) Except as provided in Sub-section (9) of this section, no 
order issued pursuant to this section shall become effective until the 
handlers (excluding co-operative associations of producers who are 
not engaged in processing, distributing, or shipping the commodity 
or product thereof covered by such order) of not less than $0 per 
centum of the volume of the commodity or product thereof covered 
by such order which is produced or mar\eted within the production 
or marketing area defined in such order have signed a marketing 
agreement, entered into pursuant to Section 8b of this title, which 
regulates the handling of such commodity or product in the same 
manner as such order, except that as to citrus fruits produced in any 
area producing what is \nown as Califernia citrus fruits no order 
issued pursuant to this Sub-section (8) shall become effective until 



430 MARKETING AGREEMENTS 

the handlers of not less than 80 per centum of the volume of such 
commodity or product thereof covered by such order have signed 
such a marketing agreement: Provided, That no order issued pur- 
suant to this sub-section shall be effective unless the Secretary of 
Agriculture determines that the issuance of such order is approved 
or favored: 

{A) By at least two-thirds of the producers who {except that as 
to citrus fruits produced in any area producing what is \nown as 
California citrus fruits said order must be approved or favored by 
three-fourths of the producers), during a representative period deter- 
mined by the Secretary, have been engaged, within the production 
area specified in such marketing agreement or order, in the produc- 
tion for market of the commodity specified therein, or who, during 
such representative period, have been engaged in the production of 
such commodity for sale in the marketing area specified in such 
marketing agreement, or order, or 

(B) By producers who, during such representative period, have 
produced for mar\et at least two-thirds of the volume of such com- 
modity produced for market within the production area specified 
in such marketing agreement or order, or who, during such repre- 
sentative period, have produced at least two-thirds of the volume of 
such commodity sold within the marketing area specified in such 
marketing agreement or order. 

Orders with or without Marketing Agreement 
(9) Any order issued pursuant to this section shall become effec- 
tive in the event that, notwithstanding the refusal or failure of 
handlers {excluding co-operative associations of producers who are 
not engaged in processing, distributing, or shipping the commodity 
or product thereof covered by such order) of more than 50 per 
centum of the volume of the commodity or product thereof {except 
that as to citrus fruits produced in any area producing what is 
\nown as California citrus fruits said per centum shall be 80 per 
centum) covered by such order which is produced or marketed 
within the production or marketing area defined in such order to 
sign a marketing agreement relating to such commodity or product 
thereof, on which a hearing has been held, the Secretary of Agricul- 
ture, with the approval of the President, determines: 

{A) That the refusal or failure to sign a marketing agreement 
{upon which a hearing has been held) by the handlers {excluding 



AMENDMENTS 431 

co-operative associations of producers who are not engaged in proc- 
essing, distributing, or shipping the commodity or product thereof 
covered by such order) of more than 50 per centum of the volume 
of the commodity or product thereof {except that as to citrus fruits 
produced in any area producing what is \nown as California citrus 
fruits said per centum shall be 80 per centum ) specified therein which 
is produced or marketed within the production or marketing area 
specified therein tends to prevent the effectuation of the declared 
policy of this title with respect to such commodity or product, and 

(B) That the issuance of such order is the only practical means 
of advancing the interests of the producers of such commodity 
pursuant to the declared policy, and is approved or favored: 

(i) By at least two-thirds of the producers (except that as to citrus 
fruits produced in any area producing what is \nown as California 
citrus fruits said order must be approved or favored by three-fourths 
of the producers) who, during a representative period determined 
by the Secretary, have been engaged, within the production area 
specified in such marketing agreement or order, in the production 
for market of the commodity specified therein, or who, during such 
representative period, have been engaged in the production of such 
commodity for sale in the marketing area specified in such marketing 
agreement, or order, or 

(ii) By producers who, during such representative period, have 
produced for market at least two-thirds of the volume of such com- 
modity produced for market within the production area specified 
in such marketing agreement or order, or who, during such repre- 
sentative period, have produced at least two-thirds of the volume of 
such commodity sold within the marketing area specified in such 
marketing agreement or order. 

(10) No order shall be issued under this section unless it regulates 
the handling of the commodity or product covered thereby in the 
same manner as, and is made applicable only to persons in the re- 
spective classes of industrial or commercial activity specified in, a 
marketing agreement upon which a hearing has been held. No 
order shall be issued under this title prohibiting, regulating, or 
restricting the advertising of any commodity or product covered 
thereby, nor shall any marketing agreement contain any provision 
prohibiting, regulating, or restricting the advertising of any com- 
modity or product covered by such marketing agreement. 



432 MARKETING AGREEMENTS 

(//) (A) No order shall be issued under this section which is 
applicable to all production areas or marketing areas, or both, of 
any commodity or product thereof unless the Secretary finds that 
the issuance of several orders applicable to the respective regional 
production areas or regional marketing areas, or both, as the case 
may be, of the commodity or product would not effectively carry 
out the declared policy of this title. 

(B) Except in the case of mil\ and its products, orders issued 
under this section shall be limited in their application to the smallest 
regional production areas or regional mar\eitng areas, or both, as 
the case may be, which the Secretary finds practicable, consistently 
with carrying out such declared policy. 

(C) All orders issued under this section which are applicable to 
the same commodity or product thereof shall, so far as practicable, 
prescribe such different terms, applicable to different production 
areas and marketing areas, as the Secretary finds necessary to give 
due recognition to the differences in production and marketing of 
such commodity or product in such areas. 

Co-operative Association Representation 
(12) Whenever, pursuant to the provisions of this section, the 
Secretary is required to determine the approval or disapproval of 
producers with respect to the issuance of any order, or any term or 
condition thereof, or the termination thereof, the Secretary shall 
consider the approval or disapproval by any co-operative association 
of producers, bona fide engaged in marketing the commodity or 
product thereof covered by such order, or in rendering services for 
or advancing the interests of the producers of such commodity, as 
the approval or disapproval of the producers who are members of, 
stockholders in, or under contract with, such co-operative associa- 
tion of producers. 

(75) (A) No order issued under Sub-section (9) of this section 
shall be applicable to any person who sells agricultural commodities 
or products thereof at retail in his capacity as such retailer, except 
to a retailer in his capacity as a retailer of mil\ and its products. 
(B) No order issued under this title shall be applicable to any 
producer in his capacity as a producer. 

Violation of Order 
(14) Any handler subject to an order issued under this section, 
or any officer, director, agent, or employee of such handler, who 



AMENDMENTS 433 

violates any provision of such order {other than a provision calling 
for payment of a pro rata share of expenses) shall, on conviction, be 
fined not less than $50 or more than $500 for each such violation, 
and each day during which such violation continues shall be deemed 
a separate violation: Provided, That if the court finds that a petition 
pursuant to Sub-section (15) of this section was filed and prosecuted 
by the defendant in good faith and not for delay, no penalty shall 
be imposed under this subsection for such violations as occurred 
between the date upon which the defendant's petition was filed 
with the Secretary, and the date upon which notice of the Secre- 
tary s ruling thereon was given to the defendant in accordance with 
regulations prescribed pursuant to Sub-section {1%). 

Petition by Handler and Review 
(75) (A) Any handler subject to an order may file a written 
petition with the Secretary of Agriculture, stating that any such 
order or any provision of any such order or any obligation imposed 
in connection therewith is not in accordance with law and praying 
for a modification thereof or to be exempted therefrom. He shall 
thereupon be given an opportunity for a hearing upon such petition, 
in accordance with regulations made by the Secretary of Agriculture, 
with the approval of the President. After such hearing, the Secre- 
tary shall ma\e a ruling upon the prayer of such petition which 
shall be final, if in accordance with law. 

(B) The district courts of the United States (including the 
Supreme Court of the District of Columbia) in any district in 
which such handler is an inhabitant, or has his principal place of 
business, are hereby vested with jurisdiction in equity to review 
such ruling, provided a bill in equity for that purpose is filed within 
twenty days from the date of the entry of such ruling. Service of 
process in such proceedings may be had upon the Secretary by 
delivering to him a copy of the bill of complaint. If the court 
determines that such ruling is not in accordance with law, it shall 
remand such proceedings to the Secretary with directions either 
(1) to ma\e such ruling as the court shall determine to be in ac- 
cordance with law, or (2) to ta\e such further proceedings as, in 
its opinion, the law requires. The pendency of proceedings insti- 
tuted pursuant to this Sub-section (75) shall not impede, hinder, 
or delay the United States w the Secretary of Agriculture from 
obtaining relief pursuant to Section 8a (6) of 4his title. Any 



434 MARKETING AGREEMENTS 

proceedings brought pursuant to Section 8a (6) of this title {except 
where brought by way of counterclaim in proceedings instituted 
pursuant to this Sub-section (75) ) shall abate whenever a -final 
decree has been rendered in proceedings between the same parties, 
and covering the same subject matter, instituted pursuant to this 
Sub-section (75). 

(16) (A) The Secretary of Agriculture shall, whenever he finds 
that any order issued under this section, or any provision thereof, 
obstructs or does not tend to effectuate the declared policy of this 
title, terminate or suspend the operation of such order or such provi- 
sion thereof. 

(B) The Secretary shall terminate any marketing agreement 
entered into under Section 8b, or order issued under this section, at 
the end of the then current marketing period for such commodity, 
specified in such marketing agreement or order, whenever he finds 
that such termination is favored by a majority of the producers who, 
during a representative period determined by the Secretary, have 
been engaged in the production for market of the commodity speci- 
fied in such marketing agreement or order, within the production 
area specified in such marketing agreement or order, or who, during 
such representative period, have been engaged in the production of 
such commodity for sale within the marketing area specified in 
such marketing agreement or order: Provided, That such majority 
have, during such representative period, produced for mar\et more 
than 50 per centum of the volume of such commodity produced for 
market within the production area specified in such marketing agree- 
ment or order, or have, during such representative period, produced 
more than 50 per centum of the volume of such commodity sold 
in the marketing area specified in such marketing agreement or 
order, but such termination shall be effective only if announced on 
or before such date {prior to the end of the then current marketing 
period) as may be specified in such marketing agreement or order. 

(C) The termination or suspension of any order or amendment 
thereto or provision thereof, shall not be considered an order within 
the meaning of this section. 

{iy) The provisions of this section, Section 8d, and Section 8e 
applicable to orders shall be applicable to amendments to orders: 
Provided, That notice of a hearing upon a proposed amendment to 
any order issued pursuant to Section 8c, given not less than three 



AMENDMENTS 435 

days prior to the date fixed for such hearing, shall be deemed due 
notice thereof. 

[(4) To require any licensee under this section to furnish such 
reports as to quantities of agricultural commodities or products 
thereof bought and sold and the prices thereof, and as to trade 
practices and charges, and to keep such systems of accounts, as 
may be necessary for the purpose of Part 2 of this title.] 

Books and Records 

Sec. 8d. (1) All parties to any marketing agreement, and all 
handlers subject to an order, shall severally, from time to time, upon 
the request of the Secretary, furnish him with such information as 
he finds to be necessary to enable him to ascertain and determine the 
extent to which such agreement or order has been carried out or 
has effectuated the declared policy of this title, and with such in- 
formation as he finds to be necessary to determine whether or not 
there has been any abuse of the privilege of exemptions from the 
anti-trust laws. Such information shall be furnished in accordance 
with forms of reports to be prescribed by the Secretary. For the 
purpose of ascertaining the correctness of any report made to the 
Secretary pursuant to this sub-section, or for the purpose of obtain- 
ing the information required in any such report, where it has been 
requested and has not been furnished, the Secretary is hereby 
authorized to examine such boo\s, papers, records, copies of income- 
tax reports, accounts, correspondence, contracts, documents, or 
memoranda, as he deems relevant and which are within the control 
(/) of any such party to such marketing agreement, or any such 
handler, from whom such reports was requested or (2) of any 
person having, either directly or indirectly, actual or legal control 
of or over such party or such handler or (5) of any subsidiary of any 
such party, handler, or person. 

(2) Notwithstanding the provisions of Section y, all information 
furnished to or acquired by the Secretary of Agriculture pursuant 
to this section shall be \ept confidential by all officers and employees 
of the Department of Agriculture and only such information so 
furnished or acquired as the Secretary deems relevant shall be dis- 
closed by them, and then only in a suit or administrative hearing 
brought at the direction, or upon the request, of the Secretary of 
Agriculture, or to which he or any officer of the United States is a 



436 MARKETING AGREEMENTS 

party, and involving the marketing agreement or order with refer- 
ence to which the information so to be disclosed was furnished or 
acquired. Nothing in this section shall be deemed to prohibit {A) 
the issuance of general statements based upon the reports of a 
number of parties to a marketing agreement or of handlers subject 
to an order, which statements do not identify the information 
furnished by any person, or (B) the publication by direction of 
the Secretary, of the name of any person violating any marketing 
agreement or any order, together with a statement of the particular 
provisions of the marketing agreement or order violated by such 
person. Any such officer or employee violating the provisions of 
this section shall upon conviction be subject to a fine of not more 
than $1,000 or to imprisonment for not more than one year, or to 
both, and shall be removed from office. 

Determination of Base Period 
Sec. 8e. In connection with the making of any marketing agree- 
ment or the issuance of any order, if the Secretary finds and pro- 
claims that, as to any commodity specified in such marketing agree- 
ment or order, the purchasing power during the base period specified 
for such commodity in Section 2 of this title cannot be satisfactorily 
determined from available statistics of the Department of Agri- 
culture, the base period, for the purposes of such marketing agree- 
ment or order, shall be the post-war period, August 1919-July 1929, 
or all that portion thereof for which the Secretary finds and pro- 
claims that the purchasing power of such commodity can be satis- 
factorily determined from available statistics of the Department of 
Agriculture. 

[(5)] Sec. 8f. No person engaged in the storage in a public ware- 
house of any basic agricultural commodity in the current of inter- 
state or foreign commerce, shall deliver any such commodity upon 
which a warehouse receipt has been issued and is outstanding, with- 
out prior surrender and cancellation of such warehouse receipt. 
Any person violating any of the provisions of this sub-section shall, 
upon conviction, be punished by a fine of not more than $5,000, or 
by imprisonment for not more than two years, or both. [The 
Secretary of Agriculture may revoke any license issued under Sub- 
section (3) of this section, if he finds, after due notice and oppor- 
tunity for hearing, that the licensee has violated the provisions of 
this sub-section.] 



AMENDMENTS 437 

State and Local Committees 

Sec. 10. [(b) The Secretary of Agriculture is authorized to 
establish, for the more effective administration of the functions 
vested in him by this title, state and local committees, or associa- 
tions of producers, and to permit co-operative associations of pro- 
ducers, when in his judgment they are qualified to do so, to act as 
agents of their members and patrons in connection with the dis- 
tribution of rental or benefit payments.] 

(b) (/) The Secretary of Agriculture is authorised to establish, 
for the more effective administration of the functions vested in him 
by this title, State and local committees, or associations of producers, 
and to permit co-operative associations of producers, when in his 
judgment they are qualified to do so, to act as agents of their mem- 
bers and patrons in connection with the distribution of payments 
authorized to be made under Section 8. The Secretary, in the ad- 
ministration of this title, shall accord such recognition and en- 
couragement to producer-owned and producer-controlled co-opera- 
tive association as will be in harmony with the policy toward co- 
operative associations set forth in existing acts of Congress, and 
as will tend to promote efficient methods of marketing and dis- 
tribution. 

(2) Each order issued by the Secretary under this title shall pro- 
vide that each handler subject thereto shall pay to any authority or 
agency established under such order such handler's pro rata share 
(as approved by the Secretary} of such expenses as the Secretary 
may find will necessarily be incurred by such authority or agency, 
during any period specified by him, for the maintenance and func- 
tioning of such authority or agency, other than expenses incurred in 
receiving, handling, holding, or disposing of any quantity of a com- 
modity received, handled, held, or disposed of by such authority or 
agency for the benefit or account of persons other than handlers 
subject to such order. The pro rata share of the expenses payable 
by a co-operative association of producers shall be computed on the 
basis of the quantity of the agricultural commodity or product there- 
of covered by such order which is distributed, processed, or shipped 
by such co-operative association of producers. Any such authority 
or agency may maintain in its own name, or in the names of its 
members, a suit against any handler subject to an order for the 



438 MARKETING AGREEMENTS 

collection of such handler's pro rata share of expenses. The several 
district courts of the United States are hereby vested with jurisdic- 
tion to entertain such suits regardless of the amount in controversy. 



Export Benefit Payments 

Sec. 32. There is hereby appropriated for each fiscal year begin- 
ning with the fiscal year ending June 30, 1936, an amount equal to 
30 per centum of the gross receipts from duties collected under the 
customs laws during the period January 1 to December 31, both 
inclusive, preceding the beginning of each such fiscal year. Such 
sums shall be maintained in a separate fund and shall be used by 
the Secretary of Agriculture only to (1) encourage the exportation 
of agricultural commodities and products thereof by the payment 
of benefits in connection with the exportation thereof or of in- 
demnities for losses incurred in connection with such exportation 
or by payments to producers in connection with the production of 
that part of any agricultural commodity required for domestic con- 
sumption; (2) encourage the domestic consumption of such com- 
modities or products by diverting them, by the payment of benefits 
or indemnities or by other means, from the normal channels of 
trade and commerce; and (3) finance adjustments in the quantity 
planted or produced for market of agricultural commodities. The 
amounts appropriated under this section shall be expended for such 
of the above-specified purposes, and at such times, in such manner, 
and in such amounts as the Secretary of Agriculture finds will 
tend to increase the exportation of agricultural commodities and 
products thereof, and increase the domestic consumption of agri- 
cultural commodities and products thereof: Provided, That no part 
of the funds appropriated by this section shall be expended pursuant 
to clause (3) hereof unless the Secretary of Agriculture determines 
that the expenditure of such part pursuant to clauses (1) and (2) 
is not necessary to effectuate the purposes of this section: Provided 
further, That no part of the funds appropriated by this section 
shall be used for the payment of benefits in connection with the 
exportation of unmanufactured cotton. 



AMENDMENTS 439 

Existing Agreements and Licenses 
Sec. 38. Nothing contained in this act shall (a) invalidate any 
marketing agreement or license in existence on the date of the enact- 
ment hereof, or any provision thereof, or any act done pursuant 
thereto, either before or after the enactment of this act, or (b) 
impair any remedy provided for on the date of the enactment thereof 
for the enforcement of any such marketing agreement or license, 
or (c) invalidate any agreement entered into pursuant to Section 
8 (1) of the Agricultural Adjustment Act prior to the enactment 
of this act, or subsequent to the enactment of this act in connection 
with a program the initiation of which has been formally approved 
by the Secretary of Agriculture under such Section 8(1) prior to 
the enactment of this act, or any act done or agreed to be done or 
any payment made or agreed to be made in pursuance of any such 
agreement, either before or after the enactment of this act, or any 
change in the terms and conditions of any such agreement, or any 
voluntary arrangements or further agreements which the Secretary 
finds necessary or desirable in order to complete or terminate such 
program pursuant to the declared policy of the Agricultural Adjust- 
ment Act: Provided, That the Secretary shall not prescribe, pursuant 
to any such agreement or voluntary arrangement, any adjustment 
in the acreage or in the production for market of any basic agricul- 
tural commodity to be made after July 1, 1937, except pursuant to 
the provisions of Section 8 of the Agricultural Adjustment Act as 
amended by this act. 



INDEX 



Acreage adjustment, i, 96, 102, no, 
166. See also Production control 
Adams, E. L., 9gn 
Administrative organization, 1, 24, 
26, 27, 37, 87, 102, 108, 121, 124, 
128, 142, 150, 167, 174, 175, 214, 
221, 227, 231-33, 294 
Agricultural Adjustment Act, 281-82, 
283-84 
amendments to, 

of Apr. 7, 1934, 16, 23, 93, 282, 

283, 293 
of Aug. 24, 1935, 16, 75, 173, 
193, 236, 257, 261, 262, 282- 
83, 286, 29on, 294, 312 
constitutionality of, 154, 217, 223,. 

274-75, 283, 285, 288 
declaration of policy in, 1, 311, 

35611. 
origins of marketing agreement and 
license provisions in, 3-23 
Agricultural Marketing Act of 1929, 

9, i2n 
Alcoholic beverages, 51 
Allotments, 

acreage, 96-97, 103, 112, 264, 291 
crop, 105 ff., no-ii, 138 ff., 149, 

171-72 
packing, 166 ff., 174 ff. 
shipping, 129, 132 ff., 143, 149 ff., 
153 fr 
Almonds, i95n 

American Co-operative Council, 256 
American Farm Bureau Federation, 

15-16 
American Institute of Co-operation, 

210 
Anti-trust laws, 44n, 121, 312, 363 
Apples, 29on, 328 

Gravenstein, 132-33, 163, 304 ff. 
Northwest, 14m, 144, i45n, 342- 
43 
Appointment of supervisory bodies, 
237-63, 290 



Asparagus, 

canned, 136, 175-78 
fresh, 136-37, 163, 335, 367 
Assessments, by control committees, 
104, 167, 24on, 316 
suit for collection of, 269 
See also Financing of local super- 
vision 
Auction markets. See under Proration 

Bankers, 68, 133, 361 

Base price, 103 ff., 202 ff., 286 

Basic crops, 1, 15, 24, 29, 77, 98 

Beans, dried, i64n 

Bees, 52 

Benefit payments, 1, 98, 113, 359 

Black, John D., 1, 2i5n, 227n, 256n, 

27m, 35m 
Books and records, 43, 82-84, 91, 

i45n, 176, 259, 296, 309-14 
Brand, Chas. J., 15, 28, 30-31, 38, 

38n-39n, 76, 79n, 179 
Brokerage, 97, 103, 104, 109, 305, 

308 
Budgets of local committees, 24on 
By-product uses, diversion to, 60, 93, 

158, 173, 185, 186-87, J 9°s I 9 1 f 

336, 337, 339, 340 

California Canning Cling Peach 

Growers' Assn., 167 
California Farm Bureau Federation, 

15-16 
California Fruit Exchange, 133 
California Fruit Growers' Exchange, 

157, 159 
California Fruit Industry, Inc., 133 
California Grape Control Board, Ltd., 

133 
California Prune and Apricot Grow- 
ers' Assn., 187, 188 
California Prune Pool, 188 
California Vineyardists' Assn., 133 
California Walnut Growers' Assn., 
" 192 



44I 



442 



MARKETING AGREEMENTS 



Canners' League of California, 167 
Canning crops, 165-80, 278n, 280-81, 

333 ff- 
excluded in amendments, 290 
See also specific crops 
Carry-overs, 14, 44, 65, 77, 101, 118, 

170, 173-74, 190 
Cauliflower, 139-40, 302 
Celery, 137-38, 163, 241, 330, 359^ 

367, 369 
Chain stores, i8on 
Charges, 

marketing, 18, 30, 44, 61, 208, 343 
service, 61, 91, 97, 104, 109, 115, 

295 ff., 304-07 
Check-off method of payment, 115, 

215, 256 
Cherries, 178-79 
Chesnut, Judge, 284 
Chicago Milk Dealers' Assn., 206 
Citrus fruits, Ch. VIII, 253, 300, 304n, 

308-09 
Class prices, milk, 201, 286 ff. 
Clearing house, 10, 133, 187, 318-19, 

364 
Codes of fair competition, 31, 42, 55, 

58, 89, 182, 194, 230, 297n, 3o8n 
Collective bargaining, 61, Ch. V, 

i79> 317, 346 

Commodity committees, 132, 143 

Competitive nature of "general crops," 
320 

Complaints, 268-72 

Compliance, 1 13-14, 172, 178, Ch. 
XII. See also Enforcement and 
Violations 

Compulsory co-operation, 318 

Conflicts of interest, 34, 37, 188, 
3i6n, 333, 371 

Constitutionality. See under Agricul- 
tural Adjustment Act 

Consumers' Counsel, 33, 207, 234, 
296, 3ion 

Consumers' interests, protection of, 
167, 302, Ch. XIII 

Consumption, domestic, 77, 278 

Control boards. See Control com- 
mittees 



Control committees, 87, 91, 97, 108, 
112, 121, 123-26, 143, 150, 167, 
171, 174, 175-76, 184-85, 186, 
191 ff., 237, 332 

Control of quality, 297, 304, 321, 
322 

Controlled marketing, 316, 362-63, 
366 ff. 

Co-operative marketing, 1, 4, 9 ff., 
11, 19, 44, 68, 70, 99, 120, 127, 
J 33> x 49> I 57-6°> 186 ff., 204, 
249, 255 ff., 257, 298, 316, 
351 ff., 360 ff. 

Co-ordination between marketing 
agreements, 101, i42n, 155 ff., 
175, Ch. VIII 

Corn, sweet, 180-81 

Cotton Standards Act, 281 

Crop boards, 102-03, 105-06 

Culls. See Withholding shipments of 
inferior grades or sizes 

Dairy products, 19-20, 46-47, 50-51, 

52, 54, 340, 345. See also Milk 
Dairymen's League of New York, 353 
Dates, 163, 182-83, 300-01 
Davis, Chester C, 45, 47-49, 79n, 257 
Davis, J. S., 66n 
Dealer margins, 61, 91, 97, 104, 109, 

295 ff., 304, 343. See also 

Charges 
Deciduous fruits, 126-33, I 4°"47» 2 53> 

304 #• 
Delegation of legislative authority, 

236, 238, 243, 246, 262, 283-90, 

364 ff. 
Demand, 101, 319, 323 

elasticity of, 339-40, 346, 362 
foreign, 100, 188-89 
Department of Justice, U. S., 292 
Differential prices. See under Prices 
Dissatisfaction, 

distributors', 28, 154, 172, 185, 190 
growers', 35, 125", 14m, 267n 
Domestic allotment plan, 1, 12-14, 65, 

75 
Drought, 66, 73, 75, 114 



INDEX 



443 



Due process, 275-83 

Dumping. See Export dumping. 

Economic democracy, 32, 236, 245, 
249, 262, 267, 287 ff. 

Enforcement, 25-27, 130, 145, 169, 
172, 185, 216, 234, 268 fT., 270, 
272 fT., 290-94, 352. See also 
Compliance and Violations 

Equalization fee, 4, 7, 9 

Equalization of wheat supplies, 316, 
320-36 

Erdman, H. E., i27n, I33n, 32m 

Evasions. See Violations 

Export "dumping," 4, 7, 9, 10, 14, 338 

Exporters, 68, 73, 85 

Exports, 64-75, 77, 146, 191, 438. 
See also McNary-Haugen bills 

Fair exchange value, 14, 78 

Fair trade practices. See under Trade 

practices 
Farmers' National Grain Corp., 70 
Federal Alcohol Administration, 52 
Federal Farm Board, 9-12, 65, 133 
Field investigations, 268 
Field Investigation Section, 268-75 
Field representatives, 235, 242, 245 fT., 

268 
Financing of local supervision, 214-15, 

24on 
Fines for infraction of licenses, 273 
FitzGerald, D. A., 43n 
Food Industries Advisory Board, 38- 

40> 43 

Gains from marketing agreements, 74, 
124, 134, 145, 170, 325, 333 

General Counsel. See Legal Division 

General crops, vii, 1, 15-16, 54, 88- 
95, 119-40, 320, 358-61 

Glutted markets, 120, 127 

Grading and standardization, 91, 97, 
114, 121, 193 fT., 297-304 

Grain Futures Act, 281, 3i2n 

Grain Stabilization Corporation, 10, 65 

Grain Standards Act, 281 

Grapefruit, Ch. VIII 



Grapes, 133-36, 163, 304 fT. 
Growers' dissatisfaction. See under 

Dissatisfaction 
Growers' trust fund, 106-07 

Hearings, 32, 33-37, 234 

in administrative enforcement cases, 

270 
on orders, 296 
Holman, Chas. W., 19 
Hope-Norbeck bills, 12 
Horticultural agreements, 52. See also 
specific crops 

Incomes of producers, 145-46, 315, 
350, 358 fT. 

Independent Rice Growers' Commit- 
tee, 102-03 

Informal price agreements. See 
under Prices, informal agree- 
ments on 

Injunctions, 169, 2i7n, 273. See also 
Enforcement 

Inspection, 297-304 

Interstate commerce power, 275-83 

King, Clyde L., 207n, 210-11, 2i8n 

Land o'Lakes Creamery Assn., 353 
Legal Division, 33, 217, 268-75, 2 9 2 > 

296 
Lemons, 158-59, 339 
Lettuce, 139-40, 302 
Licensees, 

opposed to examining books, 259 
representation on control commit- 
tees, 239 
Licenses, 284 fT. 

legality and enforcement of, Ch. 

XII 
number and dispersion of, 50-57 
origin and purpose of, 2, 16-23, 

I99n 
revocation of, 217, 269 
suspension of, 269 
Licensing and Enforcement Section, 

268 
Litigations, number of, 274 



444 



MARKETING AGREEMENTS 



Local autonomy, 

democracy 
Long-run benefit, 325, 333 

Margins. See Charges 

Market administrator, 221, 247, 268 

Marketing agreements, 

number and dispersion of, 50-54 

objectives of, 59-63 

origin of proposal for, 3 

uses of, 64-72, 76, 98, 119 

views regarding purpose of, 44, 49 
Marketing reform. See Reform of 

marketing methods 
McNary-Haugen bills, 1, 3-9, 47n, 65, 

68,338 
Milk, 50-51, Ch. X 

dried, 52, 229 

evaporated, 52, 226 

fluid, 52, 54-55, 286, 303, 306 ff., 
3i4» 351-57, 360 
Milk trade boards, 247 
Millers' Advisory Council, 112-13 
Millers, 

peanut, 89, 92 

rice, 99, 104, 108-10, 112-14 

wheat, 68-69, 70, 73 
Minimum prices. See Prices, fixing 

of 
Monopoly price, 315, 322, 330 ff., 

366 ff. See also Prices 
Mutual Orange Distributors, 157 

National Agricultural Conference, 7n 
National Canners' Assn., i8on, 29on 
National Dairy Council, 215 
National Recovery Administration, 

relation with AAA, 30, 31, 55, 223 
National stabilization, Ch. VIII 
Naval stores, agreement for, 52 
New England Milk Producers' Assn., 

2i3n 
North Pacific Grain Dealers Assn., 

69, 70 
North Pacific Grain Export Assn., 70- 

72, 74 
North Pacific Grain Growers, Inc., 

69, 70 



See Economic North Pacific Walnut Growers' Assn. 



192 
Northwest Fruit Industries, Inc., 142, 
146 

Olives, 163, 173-74, 339 

Open-price provisions. See Prices, 

posting of 
"Orderly" marketing, 10, 361 ff. 
Orders of Secretary of Agriculture, 

239, 249, 264, 289 ff. 
Over-expansion, 172, 178, 212, 339, 

367 
Oversupply, 59-60, 120, 127, 369-70 

Packers and Stockyards Control Act, 

281, 313 
Parity prices. See under Prices 
Peaches, 333 

canning, 163, 164 ff., 273n, 367, 

369 
fresh, 131, 140 
Peanuts, 76-78, 88-95, 3°6 
Pears, 

Bartlett, 131-32, i42n, i64n, 178 
winter, i42n, 144 
Peas, 139-4°, 180-81, 302 
Pecans, 193-95 

Peek, George N„ 7-8, 13-17, 28-29, 
31, 37-42, 44, 67, 76, 79n, 169 
Penalties, 129, I35n, 145, 269-75 
Perishable Agricultural Commodities 

Act, 281, 309, 313 
Fhilosophy of AAA officials, 28, 37- 
49, 75, 2ir, 267, 310, 312, 356 ff. 
Political basis of rulings, 326, 349 
Potatoes, 138-39, 164 
Price-and-quantity agreements, 84, 

85, 88 
Price-stabilizing export plan, 99 
Prices, 

agreements, informal, on, 38, 43, 

81, 89, 169, 179, 193 
base-and-surplus, 103 ff., 286 
class, for milk, 201, 286 ff. 
competition in, 334 
cutting of, efforts to eliminate, 
182-83, 205, 207, 216 



INDEX 



445 



differentials in, 103-04, 195, I97n, 
211, 315, 337 

effect of free play of supply and 
demand on, 76, 86 

fixing of, 61, 62, 80-85, 88 ff., 92, 
96-97, 103, 108, 112, 116 ff., 
140-41, 143, 165-67, 174, 179, 
180, 182, 183, 184, 191, 194, 
206, 226, 261, 284 ff., 333, 342 

growers', 60, 61 

influence of New Deal on, 77, 295- 

96, 352, 369-70 

monopoly, 315, 322, 330 ff., 366 ff. 
parity, 39-40, 52, 67, 101, 207, 

210 ff., 286, 313, 315 
patterns of, 326 
posting of, 62, 140, 168, 229-30, 

3i4> 344 
resale, 207, 216, 219, 309 
schedules of, 206 ff. 
structure of, 200, 220, 278 
trade and consumer, control of, 62, 

97, 103, 108, 168, 307 

See also Ch. XIV and specific com- 
modities 
Processing charge, 104, 109, 115, 

295 ff. 
Processing tax, 

flue-cured tobacco, 80, 83 
peanuts, 93, 95 
rice, 98-99, 115, 1 17-18 
Processors, 

attitude of, 28, 68, 73, 87, 89-90, 
94-95, 107-8, 167, 169, i72-73> 
176 
conflicts among, 36 
Producers' membership on control 
committees, 132, 137, 143, 151, 
167, 237, 251 
Producers' participation in marketing 

agreements, 250, 253 
Production control, 29, 45-46, 48, 75, 
79, 81, 206, 211, 221, 367 
California rice, 105 
character of, under agreements, 62, 

98 
cigar- wrapper tobacco, 96 
peanuts, 90, 91, 93, 94 



Southern rice, 1 10-13 
stressed by Agricultural Marketing 
Act of 1929, 10-12 
Proposals for agreement procedure, 32 
Proration, 59, 291 

California deciduous tree fruit, 128- 

30 ff. 
California rice agreement, 104 
period-to-period, 128, 133, 136-39' 

I43> I49> 330 
seasonal, 171, 184, 333, 335 
state legislation re., 15, i27n, 139 
to auction markets, 328 

Northwest decidous fruit, 144 
Florida citrus, 151 
Prunes, 186-89, 2 99> 3M> 335 
Public representation on supervisory 

bodies, 125, 167 
Pure Milk Assn., 206, 210, 2i9n 

Quotas, 

California ripe olive, 174 
canning, 171, 174, 175 
cling peaches, 168 
raisin, 184-85, 

set by Secretary of Agriculture, 
264, 291 

Raisins, 183-86, 299, 311, 314, 335 

Reform of marketing methods, 17, 41, 
44, 295, 310, 328, Ch. XIII 

Regulations governing AAA pro- 
cedures, 24, 30-31, 32, 213, 237, 
240, 243 

Resale prices. See Prices, resale 

Reserve percentage, 184, 186, 191, 
336 

Rice, 29, 52, 55, Ch. VI, 163, 251, 
300, 301, 302, 309 

Rice Growers' Assn. of California, 
102-03 

Rowe, Harold B., 43n, 76n 

"Salable tonnage." See Supplies, 

available 
Schechter decision, 185, 274, 279 ff. 
Self-government by industry, 32, 37, 

38-43 



44 6 



MARKETING AGREEMENTS 



Shipping holidays, 121, 123-24, 131, 

326 
"Show-cause" orders, 217, 270 fr". 
Sowega Melon Growers' Co-operative 

Assn., 121 
Standardization. See Grading and 
State legislation. See under Proration 
Stokdyk, E. A., 15, I27n, i33n 
Strawberries, 124-26, 163, 299 
Subsidy of exports, 

under amendments, 75, 438 
under North Pacific wheat agree- 
ment, 64-75 
Sun Maid Raisin Growers' Assn., 133 
Supplies, available, 100, 128-29, 144, 
166, 168, 174, 186, 190-91, 331 
Surpluses, 120, 127, 183, 184, 191-92, 
203 

Tapp, J. W., 233 
Terminal committees, 144 
Tobacco, 30, 51, 52, 76-88, 95-97, 
338 

cigar-wrapper, 95-97 

flue-cured, 78-88 

other types, 85 
Tolley, H. R., 28n 
Tomatoes, 179, 180-81, 303n 
Trade practices, 91, 107, 109, 193 ff. 

covered by most marketing agree- 
ments, 55, 61, Ch. XIII 

fair, 30, 206, 307-09 

proposals for marketing agreement 
control, 30 

unfair, 16-21, 194, 284 ff. 



Unfair competition, 114 

Unfair trade practices. See under 

Trade practices 
United Prune Growers of California, 

187 
U. S. Warehouse Act, 281 

Vegetables, 

canning, 179, 2gon 
fresh, 280, 302 

See also Asparagus, Cauliflower, 
Lettuce, Peas, etc. 
Violations, 114, 153-54, l 6g, J 85, 
216 ff., 224, 267-75. See also 
Compliance and Enforcement 

Wallace, Henry A., 7n, 14, 32, 45-46, 

222 
Wallace, Henry C, 28 
Walnuts, 163, 189-93, 3M> 33^) 338 
Waste, 

of product, 332, 334, 336 

reduction of, 321 
Watermelons, 120-24, 2 99 
Wellman, H. R., 359n, 368-69 
Westervelt, General, 39n 
Wheat, 29, 51, 52, 54 

conditions in industry in 1933, 66- 
68 

North Pacific export agreement, 

64-75 
Withholding shipments of inferior 
grades or sizes, 121, 123, 124, 
125, 131, 144, 186, 188, 189, 
287, 299-300, 323 



A SELECTED LIST OF THE BROOKINGS 
INSTITUTION PUBLICATIONS 

This publication is one of a series growing out of a concurrent study of the 
Agricultural Adjustment Administration. Other series deal with the National 
Recovery Administration and current monetary problems. For a complete list 
of Institution publications write to The Brookings Institution, 722 Jackson 
Place, Washington, D. C. 

Financing the Livestock Industry. 

By Forest M. Larmer. 327 pp. 1926. $2.50. 
The Legal Status of Agricultural Co-operation. 

By Edwin G. Nourse. 555 pp. 1927. $3. 
Industrial Prosperity and the Farmer. 

By Russell C. Engberg. 286 pp. 1927. $2. 
The Mexican Agrarian Revolution. 

By Frank Tannenbaum. 543 pp. 1929. $3. 
The Co-operative Marketing of Livestock. 

By Edwin G. Nourse and Joseph G. Knapp. 486 pp. 1931. 

13-50- 

Ten Years of Federal Intermediate Credits. 
By Frieda Baird and Claude L. Benner. 416 pp. 1933. 

S2-75- 
Wheat and the AAA. 

By Joseph S. Davis, 468 pp. 1935. $3. 
Tobacco under the AAA. 

By Harold B. Rowe. 317 pp. 1935. $2.50. 
The Dairy Industry and the AAA. 

By John D. Black. 537 pp. 1935. $3. 
Livestock under the AAA. 

By D. A. FitzGerald. 384 pp. 1935. $2.50. 
Cotton and the AAA. 

By Henry I. Richards. (In preparation.) 
America's Capacity to Produce. 

By Edwin G. Nourse and Associates. 618 pp. 1934. $3.50. 
America's Capacity to Consume. 

By Maurice Leven, Harold G. Moulton, and Clark War- 
burton. 272 pp. 1934. $3. 



The Formation of Capital. 

By Harold G. Moulton. 207 pp. 1935* $2.50. 
Income and Economic Progress. 

By Harold G. Moulton. 191 pp. 1935. $2. 
The Thirty-Hour Week. 

By Harold G. Moulton and Maurice Leven. 20 pp. 1935. 

(Pamphlet.) 15 cents. 
Current Monetary Issues. 

By Leo Pasvolsky. 192 pp. 1933. $1.50. 
Closed and Distressed Banks: A Study in Public Ad- 
ministration. 

By Cyril B. Upham and Edwin Lamke. 285 pp. 1934. $2.50. 
The Warren-Pearson Price Theory. 

By Charles O. Hardy. 34 pp. 1935. (Pamphlet.) 50 cents. 
The ABC of the NRA. 

By Charles L. Bearing, Paul T. Homan, Lewis L. Lorwin, 

and Leverett S. Lyon. 185 pp. 1934. $1.50. 
Price-Control Devices in NRA Codes. 

By George Terborgh. 45 pp. 1934. (Pamphlet.) 50 cents. 
The Economics of Free Deals : With Suggestions for Code- 
Making UNDER THE NRA. 

By Leverett S. Lyon. 228 pp. 1933. $1.50. 
Hours and Wages Provisions in NRA Codes. 

By Leon C. Marshall. 115 pp. I 935- (Pamphlet.) 50 cents. 
The National Recovery Administration: An Analysis and 

Appraisal. 

By Leverett S. Lyon, Paul T. Homan, George Terborgh, 

Lewis L. Lorwin, Charles Dearing, and Leon C. Marshall. 

947 PP- 1935- $3-50- 
Labor Relations Boards. 

By Lewis L. Lorwin and Arthur Wubnig. 477 pp. 1935. $3. 
Cartel Problems : An Analysis of Collective Monopolies in 

Europe with American Application. 

By Karl L. Pribram. (In press.) 
Credit Policies of the Federal Reserve System. 

By Charles O. Hardy. 374 pp. 1932. $2.50. 
The French Debt Problem. 

By Harold G. Moulton and Cleona Lewis. 459 pp. 1925. $2. 
Tax-Exempt Securities and the Surtax. 

By Charles O. Hardy. 216 pp. 1926. $2. 



World War Debt Settlements. 

By Harold G. Moulton and Leo Pasvolsky. 448 pp. 1926. $2. 
War Debts and World Prosperity. 

By Harold G. Moulton and Leo Pasvolsky. 498 pp. 1932. $3. 
The St. Lawrence Navigation and Power Project. 

By Harold G. Moulton, Charles S. Morgan, and Adah L. Lee. 

675 pp. 1929. $4. 
Railroad Purchasing and the Business Cycle. 

By John E. Partington. 309 pp. 1929. $3. 
Hand-to-Mouth Buying: A Study in the Organization, 

Planning, and Stabilization of Trade, 

By Leverett S. Lyon. 487 pp. 1929. $4. 
International Control of Raw Materials. 

By Benjamin Bruce Wallace and Lynn Ramsay Edminster. 

479 PP- ^o* fe-5°- 
Interest Rates and Stock Speculation. 

By Richard N. Owens and Charles O. Hardy. 221 pp. rev. ed. 

1930. $2.50. 
Japan: An Economic and Financial Appraisal. 

By Harold G. Moulton with the collaboration of Junichi Ko. 

645 PP- I93 1 - $4- 
Silver: An Analysis of Factors Affecting Its Price. 

By Y. S. Leong. 172 pp. rev. ed. 1934. $2. * 
The Housing Program of the City of Vienna. 

By Charles O. Hardy and Robert R. Kuczynski. 143 pp. 
1934. $2. 
The Ruhr-Lorraine Industrial Problem. 

By Guy Greer. 328 pp. 1925. $2.50. 
The Case of Bituminous Coal. 

By Walton H. Hamilton and Helen R. Wright. 310 pp. 

1925. $2.50. 

The Coal Miners' Struggle for Industrial Status. 

By Arthur E. SufTern. 462 pp. 1926. $2.50. 
Workers' Health and Safety: A Statistical Program. 

By Robert Morse Woodbury. 207 pp. 1927. $2.50. 
Teachers' Pension Systems in the United States. 

By Paul Studensky. 460 pp. 1920. $3. 
The British Coal Dilemma. 

By Isador Lubin and Helen Everett. 370 pp. 1927. $2.50. 



A Way of Order for Bituminous Coal. 

By Walton H. Hamilton and Helen R. Wright. 365 pp. 

1928. $2.50. 
Labor and Internationalism. 

By Lewis L. Lorwin. 682 pp. 1929. $3. 
The Absorption of the Unemployed by American Industry. 

By Isador Lubin. 36 pp. 1929. (Pamphlet.) 50 cents. 
Unemployment Insurance in Austria. 

By Mollie Ray Carroll. 52 pp. 1932. (Pamphlet.) 50 cents. 
The American Federation of Labor: History, Policies, and 

Prospects. 

By Lewis L. Lorwin. 573 pp. 1933. $2.75. 
The British Attack on Unemployment. 

By A. C. C. Hill, Jr., and Isador Lubin. 325 pp. 1934. $3. 
The Problem of Indian Administration. 

By Lewis Meriam and Associates. 872 pp. 1928. $5. 
New Federal Organizations. 

By Laurence F. Schmeckebier. 199 pp. 1934. $1.50. 
Administrative Legislation and Adjudication. 

By Frederick F. Blachly and Miriam E. Oatman. 296 pp. 

1934. $3. 
International Organizations in Which the United States 

Participates. 

By Laurence F. Schmeckebier. 370 pp. 1925. $2.50. 
Public Welfare Organization. 

By Arthur C. Millspaugh. 700 pp. 1935. $3.50. 
The Society of Nations: Its Organization and Constitu- 
tional Development. 

By Felix Morley. 678 pp. 1932. $3.50. 
The American Transportation Problem. 

By Harold G. Moulton and Associates. 895 pp. 1933. $3. 
The Economics of Air Mail Transportation. 

By Paul T. David. 235 pp. 1934. $2. 
Trend Analysis of Statistics : Theory and Technique. 

By Max Sasuly. 421 pp. 1934. $5. 
Federal Services to Municipal Governments. 

By Paul V. Betters. 100 pp. 1931. (Pamphlet.) 50 cents. 
Advisory Economic Councils. 

By Lewis L. Lorwin. 84 pp. 1931. (Pamphlet.) 50 cents. 



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